I was watching the victory speeches this evening and heard something that galled me. I'm used to listening to the pandering speeches, with all of their empty promises in words spun so tightly that their meanings are lost in their staccato delivery. But sometimes... I hear something that I just can't digest.
Everyone who is not in a persistent vegetative state has now heard of the "mortgage crisis". It's in the media every day, and tends to be linked with the term "recession". More often then not it's credited as the root cause of the lack of confidence that has developed in the resiliency of our economy. The thing that bothered me this evening wasn't the mortgage crisis, or the recession fears that are being fanned, but rather the way that the entire crisis was being characterized. My issue was that the politician blamed the crisis on "predatory lending".
So at some point... lenders became predators.
What galled me was yet another subtle example of the continued slide of self responsibility. At what point will people finally decide to take responsibilities for their actions? If you decide to buy a home, who is responsible for ensuring that your loan is the best possible rate? The lender? Are you kidding me? Obviously the purchaser is responsible. Yet somehow, lenders have been labeled the predator. Are there examples of situations where a mortgage banker or broker acted in self interest over the interests of their client? Sure. Does that release the consumer from responsibility for their own self interest? Of course not. In Latin it's caveat emptor, or let the buyer beware.
OK people, let's all take this Nabor Dan wisdom to heart...
If you have reached the age of majority in your state be careful what you sign. If you don't understand what your signing... don't sign. Take the time to find someone who can explain it to you. Don't assume that anyone who has an financial interest in the transaction will offer you advice that is in your interest. And lastly... if you get screwed on something that you signed, suck it up and take responsibility for it. The only thing worse then someone taking advantage of you, is you not taking responsibility for yourself.
- ND
10 comments:
Ah, time for another self-absorbed rant by the English wanker...
You are correct sir - it is absolutely looney tunes to blame the whole mess on predatory lending. There were a few factors.
1) The Fed did force changes to underwriting standards to favor less financially stable people to get loans - all in an effort to stop 'redlining' that was assumed to be racial discrimination in nature. I'm sure some were redlined by racially bigoted folks - however, studies showed that the the overwhelming reason for redlining was because of poor credit histories. Now, per capita 'whites' do have better credit than minorities - its not a stereotype, just one of those unfortunate realities. But that does not make that redlining racist in nature. But its all too late - the Fed forced the change - looser underwriting standards to benefit the less fortunate (subprime borrowers).
2) The housing market quickly breached the rafters and showed little signs of slowing down. This makes people a bit more greedy than usual, and quick to take bigger risks. Lots of investors and money available, prices getting loftier every month, etc. It also led to allowing borrowers to borrow more than the value of the home - assuming the home would increase in value at the same rates they had been.
The above risk taking did lead to some 'aggressive' lending. Mortgage brokers were being paid by the loan and encouraged to make 'sales'. But we do have lending laws that cannot be bypassed (truth in lending, etc.), we do have an over-abundance of information available to borrowers, etc. Too many ignored it all - eager to buy that home they never thought they'd have (and perhaps shouldn't have). It was a two-way street for sure.
A perfect storm - lower the standards (the Fed, not 'really' a government ran entity, wink-wink, nudge-nudge), housing prices blowing off the thatches, risky lending behavior, risky borrowing behavior. You cannot really have it all without step one - which the lenders did not ask for. But we all know there is more than one ingredient in a stew. The steps following made it worse.
Cheers!
Mr. Fawkes
Once again you have shown an exceptional grasp of the situation.
I agree that the regulatory process that exists may not have properly shielded individuals from overstepping, and that more could probably have been done to control the lending process. I don't however, recognize it as a mandate of government to keep people from making bad decisions.
If people were smarter, and controlled their irrational exuberance when confronted with buying decisions, things would likely look much different. I'm not a fan of overreaching regulation, and think that the governments role in the process should have limits. That's the reason for the personal responsibility argument. If you make decisions in a well reasoned and researched way, you are more likely to make better ones. When you don't... it isn't my problem to bail you out.
As we all know, common sense is anything but common. Perhaps this would be an opportune time to address personal finance as an issue in the educational process. Would we be well served by making a requirement in our secondary education to cover this? Just a thought.
Thank you for your comment.
-ND
First, let me say that both Nabor Dan and Guy Fawkes need to go to bed earlier. I suspect that your concerns and thoughts may be driven by too much late night CNBC market analysis.
Here's my 2 cents from the Left.
Individuals should not enter into loans that they cannot afford -- either in the present or with the future in mind. Everyone should be responsible for their own financial future (except me -- thanks for the help in the past Mom and Dad, Joe and Nordy and Nabor Dan.) However, market transparency is necessary to make good decisions.
Economists have been warning of "over exuberance" in the housing market for several years. The dot-com bubble's burst was followed by a bubble in housing. Prominent economists -- such as my favorite liberal, Paul Krugman -- have been warning for years that the economy couldn't be based on Americans selling other Americans houses. The Fed (under new management) now agrees.
However, fundamentally the problem is about transparency in the market and regulation. Throughout the last decade federal regulations have been shed like winter clothes in spring. Without oversight of the marketplace, significant bond deals have been marketed throughout the credit system rated as much safer than they actually are. When bond traders aren't exposed to the real risks of investments, they make bad deals.
Regulation by the federal government isn't always bad. Many industries embrace regulation as a safeguard against dishonesty in the marketplace. And, afterall the most important component of market transactions is trust.
Shame on the individuals who intentionally over-reached. But, pity on the home owners who had a dream of ownership, but were trapped in a market creating false value.
At the end of the day, don't think the traders and CEOs will give up their houses.
As usual, it'll be the middle class and poor that are hurt most by the crisis. ...One that is less about financial prowess than market fairness and transparency.
Uber conservatives have been kneeling at the altar of the free market to solve all of the nation/world's problems. When the markets fail, they shouldn't look to the middle class and poor for skapegoats -- they should look to the "integrity" of the markets.
I'm sure there were some people who really were victims of "predatory lending" - there's always bad apples and I'm sure the 'mortgage-broker-chasing-commissions' barrel is no exception. But I don't think the too-hot market is to blame either. We faced the decision when we moved to CA. Everybody said, "you have to get in! It's going up 20% each year?" It was a real conversation killer when we asked, "and how long is that sustainable?" This is more about greed - the borrowers who wanted more house (or any house of their own), and the lenders who were willing to make bad loans ("no,you don't have to prove you have income!") for bigger returns. There was a great book I had to read in college, and while the title escapes me, Chapter One was named: "The Bullshit Detector." People either haven't developed or choose to ignore their BSD's. If the loan officer is saying that you can afford a $500K house and you make $30K/year, that's bullshit. The smart thing is to walk away, but too many people said, "Great! Where do I sign?" And now it's a crisis.
Bro. Dave,
While I do enjoy commentary 'from the left', critiquing CNBC as a source of information (I honestly have no idea upon which channel it even resides) while touting Krugman as any sort of 'economist' short of a political shill, hampers your argument a bit. I do hope dear boy, that you use additional sources of information and do not buy his act any more than half the time. (As a non-liberal, I've reduced it to less than 20% of the time - see, its a sliding scale).
However, back to the issue at hand. While its clear a lack of transparency (or regulation) led to a lot of overpriced buying of less than stable portfolios - I'd like to point out again that the changes in underwriting that led to this lack of stability was the result of.... 'regulation'. If you believe one side of the isle, or philosophical divide, is more correct/guilty/innocent than the other, you may need to check the tinting of your spectacles, or contact lenses, or color of undergarments, something.
Full disclosure, I'm wearing blue undergarments right now... with little Tabasco bottles printed on them - I'm a spicy chap (and am not watching CNBC).
My story...
I don't often have one, but I'll weigh in here because I've got a bit of a history with this topic.
I worked for a reputable financial lender in St. Louis during "mortgage storm" in the early 90's. The low interest rates had everybody refinancing or purchasing. I processed low income loans and maybe more importantly taught first time home buyer courses in an effort to teach folks what they were getting in to BEFORE they signed on the line.
Now, I work for the lawyer regulatory agency. We also take complaints against folks engaging in the unauthorized practice of law which in MO can be interpreted as folks who aid and advise you in filling out certain legal forms.
Here's a case I recently handled...
Single mom has been renting a home for herself and her mentally disabled son for several years. It's an older home on the outskirts of town. Mom works the customer service counter at the local grocery store and likely does not have a high school graduation certificate to hang on the wall.
The landlord offers to sell the house to the mom. He tells her that he has a friend who is a mortgage broker and that her rent can be counted as a down payment on the house. She won't need any cash to close and the little gem she and her son have been calling home sweet home can be hers.
Mom is thrilled with the prospect of home ownership for herself and her son. What could be better?
Mom and landlord go to visit with mortgage broker. Mortgage broker has his assistant (who just one short month earlier was selling cell phones up the street) draw up the paperwork including the buyers agreement.
Mom didn't know anything about home inspections and landlord nor the helpful mortgage folks offered any information on that topic. The mortgage folks also had a friend who was an appraiser that was helpful enough to give the place a higher appraisal to aid in the ratios.
Just two short months after closing, here's what Mom learned:
1. The air conditioner that had been serviced the year prior was on it's last leg and died the first time it was turned on for the new year.
2. The roof needed to be replaced.
3. The landlord hadn't paid the property taxes for the portion of the year which he still owned the home and the paperwork had been cleverly worded indicating he wasn't responsible.
4. The nifty payment that looked so good at signing was only good for the first six months. It increased steadily after that.
Sooooo.... the State regulatory agencies won't take the case and the Mom can't afford to hire a private attorney. She's just out of luck.
My point I guess is that each scenario is different. Some folks make poor choices, some folks aren't capable of making an educated choice on their own. I suppose it takes all kinds to make the world go round.
TOK
Just in case no one spent the time to watch the Debate last night... the candidate that I chastised in this post used the term "predatory lending" in his his opening statement.
Nothing turns ideas into facts like a little repetition.
- ND
on the mom-house posting:
This woman does have a remedy - it's the civil courts. But then that's a whole 'nother discussino topic about how justice is for sale and poor people are shut out of good representation. I've had a crash course in recent months about the difference an interested lawyer (i.e., being paid by the client) makes in a case. I hope with your broad knowledge, good resources and kind heart, you were able to turn this mom onto a legal aid agency that would take her case.
Have a couple comments here:
single mom issue: yes she was clearly taken advantage of BUT does she have NOONE in her life ...father, mother, uncle, cousin someone else that she can consult with? Just a thought.
Also I think there are a lot of people out there who bought way more house then they could afford. I know of several people who I would often wonder "how can they afford that house?" and now come to find out they ARM loans and will be in trouble soon. I guess their eyes were bigger than their wallets. But I don't see how that is the governments problem. Also..no one is giving me extra money or kudos for buying a smaller house I could afford and being responsible with my money.
Nabor Dan thanks for stating what a lot of us feel...what the heck happened to being responsible for your actions?
To answer the question posed in the title of your post, I offer an admission...
It's my fault and my responsibility.
How's that for stepping up.
Anon.
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