One of the more bizarre claims of the faith based right is that markets just work.  That’s not what economists say, of course. They say markets work under specific conditions including full information, but we know that the subprime market has had many, many bad operators in it for years now and one of their tactics is to agree to a set of terms and then include different terms in the text of the agreement.  Individuals aren’t able to read through  the legalese or are pressured to sign quickly, and surprise, surprise the conditions knock them out of their house.

Hence, the idea behind mortgage counseling is that it is designed to ensure that individuals obtaining subprime loans have full knowledge of the impact of the loan agreement they are signing.

But our good friends  in the social darwinism camp at  Illinois Review think providing information to people obtaining riskier mortgages is nanny state like.

The thing is that the program (more Madigan’s idea than anyone’s) isn’t designed to be nanny-state like–it’s designed to ensure that transactions occur in a full information environment where people are given assistance in understanding the terms of an agreement especially in cases where unscrupulous subprime lenders misrepresent the terms.

None of this happened in a vacuum though–Alan Greenspan strongly encouraged people to adopt variable rate mortgages.  As we see the subprime market crumbling, we can only guess that it was because he saw the house of cards about to come down and wanted to keep the illusion going that everything was okay.

I will give some credit to Dan Green who has written about some of the very real practical problems with HB 4050, but I strongly disagree that counseling is not a good thing if we can provide it to people and HB 4050 identifies key warning signs of a borrower who will not be able to maintain their payments.