Your are combining a plethora of issues. Underwriting, secured v. unsecured, etc. The article to me is about moral hazard rather than substandard underwriting.
I believe it customary in real estate to find a purchase you wish to make then ask a lender to finance it for you. Presumably your personal risk analysis was completed prior to the loan request. They underwrite you and make an offer, knowing that in secured lending the risk of total loss is usually non-existent. Now you have an asset on your balance sheet with offsetting debt and they have an asset and a security interest.
It’s lame to say the behavior your lender engages in by dispositioning his assets later on has any impact on your original agreement to pay. This article isn’t talking about weak underwriting, it’s talking about a clear title issue that isn’t part of what you even bargained for. If title was clear in the first place and you pay, it will be clear again.
Comparing that to walk aways on risk priced unsecured lending doesn’t work for me. Lenders know the risk and price accordingly. Also people walk away and file bankruptcy all the time. Both behaviors are expected and thats why GE lends to persons at 30% APR.
And I think you’re making a false distinction between “secured” and “unsecured”.
Yes, there is a question of moral hazard, but at some point you actually have to “do the math”. And it’s not up to the consumer (in a capitalist economy) to “do the math”.
If a lender decides to lend me $5 because I’m pretty or because I give him title to my 1985 Lexus as collarteral is irrelevant. It’s the lender who has to do that math to decide whether or not an ‘85 Lexus will give him back his principle and interest if I can’t pay.
IT’S NOT MY JOB, any more than it’s my job to determine what price Burger King should charge for a Whopper. If BK charges too much, I don’t order a Whopper. If they say “Here’s your Whopper, pay $10 years from now”, it’s not up to me to decide if that “price” will make them money or not.