It's interesting that month after month we hear about large corporations and their double digit growth. The business economy in the USA is booming. Tax benefit programs and governments trying to prevent outsourcing to other countries are helping many businesses to be extremely profitable.
While many of the rich continue to grow richer in our great capitalistic society, conversely, many American families are being hit hard as the housing bubble's burst, turns their wallets inside out. What I find so amazing about this bubble bust and the resulting multiplicity of foreclosures is that it seems that nobody saw it coming.
The biggest cause of all these foreclosures isn't people losing jobs or taking pay cuts, it is the average American's misunderstanding of how to manage their finances. It's not that I don't sympathize with families going through such troubled times but I can't fathom entering into some of the mortgage agreements that these families have.
The late 90's and early 2000's brought lower interest rates for mortgages along with an increase in the types of mortgages available which made the American dream available to almost anyone that met minimum requirements.
Two things bother me about how this has unfolded one about the medias coverage and one about peoples expectations:
1. Placing the blame on "predatory lenders"
This isn't to say that there aren't real predatory lenders out there. There are those despicable that truly take advantage of people. However, a lender that provides legitimate options to qualified individuals are not predatory! The media doesn't seem to understand the difference. When adjustable rate mortgages (ARM) became popular it was perfectly clear that once the introductory rate expired that the rate would adjust UP. Sure there was talks that no one new for sure and that they could possibly adjust down but the writing was on the wall. I say this with confidence because it was clear to me and I was a young high school student without a real interest in real estate. Now as a homeowner, while an adjustable rate mortgage made it easier for me to afford my home, if I don't refinance or something happens with my income that is not GMAC's problem, nor should it be. Sympathy is nice, lending is business.
2. Bailing everyone out.
Once again the media cries foul if the Government doesn't step in with programs to protect those that have become less fortunate because of bad decisions. It's not that I am against bailing people out but you can't have that or expect it (New Orleans) unless you are willing to pay through taxes BEFORE the fact. Our society is so against higher taxes until something affects THEM or the people that have the ability to elect them and they need the money.
Remember there is a huge difference between PREDATORY and Subprime lenders. This is fast becoming a huge political issue and everyone is jumping in to save the people that can't make sound financial decisions.
Sunday, August 26, 2007
Busting the Predatory Lending Myth
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8 comments:
Ryan, your view is very limited. The simple fact is that many lending companies didn't "offer people legitimate options", but instead offered only adjustable rates (even to those with solid credit) along with verbal guarantees that refinancing would be available when payments ballooned, or sold loans to consumers without telling them what the adjusted payments would look like although the lenders knew beyond a doubt that there was no way those consumers would be able to make the adjusted payments (sometimes, the adjusted payments were in excess of the borrowers total income). When the industry itself refers to various loan types as "foreclosure loans" and "liar loans" and then cheerfully represents those loans to consumers as the best option available to them, something is wrong that runs far deeper than irresponsible consumer decisions. And thats without even taking into account the surprising number of mortgage companies whose staff now admit that they actively defrauded consumers by offering them documents to sign that reflected very different terms than those discussed verbally, even to the point of including false cover pages on the packet of documents.
Yes, there is an argument to be made that the consumers should have read every line of every page they signed, but that hardly excuses the lender behavior or makes it out of line to blame the predators. Many people who are victimized by criminals play into that victimization through their own carelessness or lack of comprehension, but that doesn't make the crime not a crime.
Well, my mortgage hasn't adjusted yet, but my monthly payment has gone up, because of outrageous insurance and taxes increases. I live in Florida. I do not have a beach house, I do not live in a mansion, but I have to suffer because of this. Many other people in my area our in the same boat. I have never made a claim on my insurance, and I don't live in a evacuation zone. And then the local government puts taxable values on our homes that are laughable. My home is valued over $100,000 more than last year! According to the property appraiser. Of course, with all the houses on the market due to foreclosures, there is no way it is worth more, it is worth less!
Well, what about all the people in Florida, we are getting slammed by the insurance companies and the local governments overvaluing our properties for tax revenues. Our house payments are going up without adjustable rates! And not just alittle, hundreds of dollars a month! I don't live in a mansion, and I don't live in an evacuation zone, and I have never filed a claim on my homeowners insurance. So the foreclosure crisis around here isn't just about adjustable rate mortgages!
Rockstories (Tiffany),
What I perhaps didn't make clear enough is the difference between REAL predatory lenders as you described and those lenders that offered "subprime" loans.
I don't have anything good to say about the predatory lenders but I think a lot of legitimate lenders are being included in the discussions of predatory lending?
Hi Ryan,
Thanks for commenting on my site. You did a good analysis contrary to what rockstories said. I follow the stock market, so I felt something had to happen to housing prices, because if you remember at the end of the Clinton presidency and after 9/11, the economy started to plummet and it went like that for awhile. The housing market never followed because of these deals the lenders were making to borrowers, so you really had prices of homes artificiaHlly high. I told my nephew last year who wanted to get into one of these mortgages last year to wait about five years because there was going to be a shakeout. I didn't realize the extent.
Here is another point. What about the people who didn't make the bad decisions and instead decided to keep renting or buy houses they could afford. If the government bails out the people who made the poor decisions, he is punishing those who decided to live within their means.
I don't think the lenders should be bailed out either. In fact, the weaker ones will go bankrupt (which has already happened) and the stronger mortgage companies or bank that have sufficient resources will be able to weather the storm, and they will survive.
If you bail everyone out, no one learns their lesson, but if you don't bail everyone out, people learn from their lessons and we become a stronger nation as a result which is what capitalism and our nation is all about.
http://mark24609.blogspot.com/
"Everybody in politics lies, but [the Clintons] do it with such ease, it’s troubling.”
David Geffen - Former Clinton supporter and Hollywood mogul
But it is absolutely ridiculous that something is even LEGAL where you can get approved for something along the lines of an interest-only loan pegged to a variable index at the MAXIMUM percentage of your income allowable. It basically sets up for EXACTLY what has happened and shows that they had some good sense back in the '70's to REQUIRE 20% downpayments and fixed interest rates.
RYBU,
Thanks for visiting The Political Lizard.
I agree with you, while I feel sorry for the people losing their home to foreclosure, I don't think they were all necessarily victims of predatory lenders.
We have to remember that these people were not homeless when they took out these loans. I think they probably should have waited and improved their credit so they had better options when when pursuing a mortgage.
Of course there are predatory lenders who take advantage of risky borrowers, but the consumer must be responsible and fully understand all the conditions attached to the loan before signing.
I agree with "rockstories", many people are victimized through their own careless actions and the results can be devastating, but is it the government's responsibility to bail them out of a bad business deal? I don't think so.
Hey Ryan - thanks for replying to my post on LJ.
I would pretty much agree with your blog post here. The only thing I would add is that credit rating companies own a share of the blame, too. They're supposed to be the watchdog in this credit/lending industry, yet they stood by and allowed companies like Countrywide to keep on lending with a high rating. Now Countrywide is in deep trouble.
Cheers!
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