Question Two: If all the lenders go broke, will the borrowers get off the hook?
Lending Club also sets the borrowers' interest rate based on FICO scores and determines who gets funded.
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Nonetheless, the borrowers willingly comply, and to everyone's surprise, nearly all of them pay back the loans.
If not, the borrowers had to be told that they might have grounds for complaint and compensation.
The borrowers who need money the most, of course, are not the ones banks want to lend to.
The borrowers send the payment to Somolend, which then remits the corresponding payments to each of the borrowers.
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These investors buy the securities expecting certain performance characteristics, including payment flows from the borrowers of the underlying loans.
The borrowers rejected that deal and ultimately sued Emigrant for racial discrimination (while continuing to live in the house).
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Also sadly typical was what happened a few months later: The borrowers defaulted.
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Hard-hit California is home to 53% of the borrowers, Florida to another 7%.
The banks are the ones doing the advertising and actually reaching the borrowers.
The loans that are being made are more expensive to the borrowers.
The plan includes refinancing some of the borrowers into private, fixed-rate mortgages, or putting them into Federal Housing Administration loans.
In the past few years, low rates have reduced the borrowers' expenses and masked problems the properties may be facing.
But there too, the government would have to draw a line between the borrowers who qualify and those who don't.
He says even some loans where the borrowers have decent credit can be bought at a big discount right now.
The borrowers and original CMO investors were betting that home prices would remain strong and keep them out of trouble.
Margolin says that the seniority of the bank debt makes up for some of the weakness in the borrowers' balance sheets.
"The banks displayed a remarkable generosity toward the borrowers, " Mr. Daly said.
It utilizes the advantages of crowdfunding in finding lenders to help finance the borrowers, which in this case are students looking for student loans.
And indeed, many of the borrowers featured in the film become emotional when they finally reveal on-camera the true extent of their debt.
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If acceptable documentation cannot be provided by the borrowers to support the information used to secure the original electronic approval, the whole thing collapses.
Both the lenders and the borrowers knew (or should have known) that these mortgages were designed to blow up if housing prices simply stopped rising.
The borrowers had average Fair Isaac Corp. credit scores of 685, a tad above the 660 that conventionally divides the world of prime mortgages from subprime.
Although many are victims of circumstances beyond their control, almost all of the borrowers in the stories he tells showed bad judgment, inadequate effort or both.
To get judgments against the borrowers, the judge said, a single Mel Harris employee named Todd Fabacher signed 40, 000 affidavits attesting to the accuracy of debt claims.
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Kiva teams up with micro-finance organizations on the ground, which vet the borrowers to help ensure they can repay their loans (about 98% do, as did Tursunova).
The private sector believed that housing prices would rise steadily, and thus that loans backed by housing could not go wrong, even if the borrowers had poor credit.
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Since the real problem lay partly in the mortgages, rather than the borrowers, this suggests the subprime crisis was a financial-market mess, as well as a housing one.
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