Or should they try to shut down those innovations altogether, even if they might expand the pool of borrowers who have access to credit on favorable terms?
The likeliest explanation is that the pool of borrowers who are both willing to seek and eligible for a modification is drying up.
In addition, if lenders can accurately identify people who are unlikely to repay their loans, they are able to cut their overall costs and can afford to charge lower rates to the remaining pool of borrowers.
Some borrowers would try to signal their reliability to the markets by asking for loans without the option; the pool of borrowers buying options would then become riskier, on average, and the price of the option would rise; that would encourage more borrowers to do without the option, and so on.
Some in the microfinance business have questioned the Grameen Bank's focus on serving the poorest, arguing the industry would grow faster and have more impact if it aimed at a wider pool of borrowers, including those struggling just above the poverty line.
It's no wonder that the company can undercut rates offered by existing student loan programs, because it's got its pick of a prime pool of borrowers rather than needing to lend to every student in the country.
Also, expect to see lenders reaching out to a wider pool of borrowers.
We can eliminate sub-prime as a category, while we're at it, as this is the highest risk pool of borrowers for home loans.
Steven Zeisel, general counsel of the Consumer Bankers Association, testified that the agency's proposed guidelines for qualified mortgages will limit the pool of borrowers and that student loan holders may be able to discharge crippling debt through bankruptcy in the future.
But the pool of borrowers that can be contacted via auto-dialers remains small, said Michele Streeter, communications manager at the Education Finance Council, a Washington group that represents some student loan companies.
