Trends in lending change over time.  This can be due to the economy or a reflection of prevailing social viewpoints.  Lending can change as a result of newly created laws involving borrowing and lending, or, alterations to current regulations regarding how banks and other lenders do their business.

In the past, there was a Truth in Lending Act.  This Act required lenders to completely and fully disclose to consumers all the details about the terms and fees involved with a loan.  It protected consumers by making it more difficult for banks and lenders to imply that a loan would be given at a low rate, when in reality, it would change to a much higher interest rate in a few months.  Lenders who violated this Act experienced penalties, because they were breaking the law.

In the 1980s, banking was deregulated.  This meant that the United States Government was no longer checking to make sure that banks were making good loans.  Banks were allowed to get involved in investing, which mean they could now sell the mortgage loans they created to investors.

Congress altered the Truth in Lending Act in 1995.  There was now a cap limiting how much a consumer could receive it he or she sued a lender that violated the Truth in Lending Act.  The trends in lending changed as a result.  Lenders now were able to offer mortgages that would allow them to make a profit.  This was at the expense of consumers.

It was no longer required for lenders to clarify terms and rates of loans, and the result was what has been referred to as “Predatory Lending”.  Mortgages loans were given out that had adjustable rates, which allowed lenders to increase the interest rate of the loan as time went on.  Interest only mortgage loans were created.  This meant that the consumer would never be able to afford to pay more than the interest on the loan.  It meant that a person could pay their mortgage bill on time for years, and never touch the principal amount of the loan.

The next trend in lending was called “sub prime lending”. Loans were given to people with insufficient income to pay off the loan, or with insufficient information about their finances.  These loans were sold to investors as quickly as possible.  When the housing market fell in 2008, these were the loans that went into default.