Blame the Homeowner for this loan mess? NO!
Posted By Kathleen David on April 13, 2008
Now the homeowners who have the sub-prime mortgages are being blamed for taking on more debt than they could pay. They should have known better. They are bad people for not being able to pay for their houses.
I don’t blame a majority of them. (I can’t say all because I am sure there were a few that did this to cheat others out of money.) Consider what we saw on TV before the mortgage crash. The commercials aired that told people that they too could be a homeowner and part of the American Dream. They could be real estate moguls and retire early. I constantly hear these both on TV and on the radio. People who thought that they would never own their own home were given a chance to do so. People were talking out second mortgages to pay for their kids to go to college and other things because it was so easy to do. We also have programs like “flip this house” where we are shown that you can take a home and add some money and sweat equity to it and then sell it at an absurd profit. You could make money was the cry.
Home ownership is important to people in America. Owning a piece of land, I was told from an early age, shows that you have made it. Owning a home meant that you had a freedom that renters didn’t have and you had something valuable down the road you could use as an asset. And it is a siren song that is played over and over again.
I think we are going to find out a lot more about how banks worked the system to their advantage to make huge profits for their stockholders. I also think there are going to be some serious revisions as to how people applying for credit are assessed. This is going to be bad for many people who were about at the point that they could buy a home or a new car or some other large purchase. But I think in the long term this might be exactly what needs to happen to make sure we don’t stay in recession longer than we have to.
I also think we need to look at the people who pushed these loans that are now causing the problems with the banking system. We also need to take a serious look at the people behind them who convinced the brokers that this was the way to go. The brokers got their cut and screw the customer. It was no longer their problem. There was a nudge nudge wink wink about these sub-prime loans. We are finding more and more that paper work was incorrectly filled out or changed slightly because it would help the customer secure the loan. And of course these customers were told don’t worry because everyone is doing it.
Then there are the renters who are caught in this mess without doing anything but pay the rent to the landlord. They entered into a contract for their living space only to find that the landlord has been put into foreclosure by the bank and they have less than a week to find somewhere else to live. I feel sorriest for these people. The ones who did everything by the book only to find themselves on the street.
The banks and lending institutions needs to stop this campaign of that it was upon the customer to make sure they could afford the loan. The problem is within the loan system itself when some idiot found a loophole in the federal regulations that allowed them to create this system that has now collapsed. They did it to themselves and rather than the government bailing out the banks, they should be bailing out the taxpayers who entered into these Faustian deals in good faith.
I am grateful that we have a fixed rate on our mortgage.
Kath,
This reminds me of when I was working in the collections department of one of the major nationwide banks. We had a loan officer who was giving out car loans as if they were Cracker Jack prizes, to people who were pulling minimum wage at Taco Bell. The idea was that she would look good for making all these loans, and then move on to another position before the bottom fell out and the loans had to be charged off. As it happens, she didn’t get that bigger position she wanted in time, and when it came time to pay the piper, she got fired. But while she didn’t profit from it as she thought she would, and got what was coming to her, it really didn’t do the bank or the customers any real good. The loans were still charged off, and the customers lost their cars and had their credit ruined.
I don’t really have a point with this, I’m just reminiscing and sympathizing with how you feel.
Do I blame all the homeowners? No, but we have to blame most of them. There were plenty of loans that were granted based on inflated information on the loan app, that the mortgage broker filled out. Those people I feel bad for.
I don’t feel bad for the people who say, “OK, I will buy this and than refinance later when I have a better paying job. These people are buying a hëll of a size of a house for no reason thinking things will get better and they can move on.
I was married for 8 years before I bought my house. The house I bought was the house I could afford right than, not what I thought I might be able to afford in the future.
It’s almost comical, really.
The dot-com boom and bust, and now the housing market boom and bust. What’s next?
Also, whatever is learned from the housing market, it desperately needs to be applied to the credit card market as well.
No sense in having the mortgage lenders turn down people with bad credit for loans only to have credit card companies turn around and give them all the cards they want.
In fact, I’d go so far to say that with credit cards it’s probably even worse.
In the end though our government has conditioned us that borrowing is fine, running a huge deficit is fine, etc. And if the corporations do it? That’s pretty much ok too. Oh, but apparently it’s not ok when the working man does it.
I’m going to annoy everybody and say both sides were being greedy. I can forgive a few homeowners who were probably outright lied to, but you can bet that number far lower than you think. And you can bet that the mortgage companies and banks didn’t put themselves in this position because they knew this was going to happen. Both sides went for the greed and both sides miscalculated.
Watching all this take place, I couldn’t help but think of when we were about to buy a house. We told the agent what we could pay, and everything went swimmingly until we happened to reread the mortgage paperwork which came back just over twice what we told him we could pay. So, we told him we couldn’t do it, nope, deal’s off. Three hours later we get a call, “Oh, I misunderstood, but with a variable rate mortgage, you could get down to that.” So, obviously, we didn’t get the house. But how many people went in for that, I wonder?
I put the greed factor squarely on the banks.
Last year, with the addition of another foster child, our house was tight, and we found a great deal on a new one. The bank gave us a mortgage without a Hubbard clause – a load of two mortgages. Unfortunately, this was the month the real estate market in our area collapsed, and we were unable to sell the old house, even when we dropped it below market value. After 9 months of shelling out $2,000 a month more than we made, we were staring down the barrel of foreclosure and bankruptcy. In 9 months, we’d lost close to $100,000, all totalled. Knowing it would be a long time before we could get a loan again, my husband went out and bought a new car – AND THEY GAVE US A LOAN. This was unfathomable. We were penniless (except for real estate).
We did not default. We moved back to our first house, and sold the new one two days before we would have had to foreclose. We took a large loss, but it paid the bank. We did have to file bankruptcy, but not on the new car.
Did we make a bad choice? Yes and no. We did everything right. The new house was a hëll of a deal, worth $100,000 more than we paid. We will never touch a sale again without a Hubbard clause – sale pending the sale of our property first. Should the bank have let us have a second property loan? I don’t know. Had we sold the house in 6 months, we would have been fine. Should they have looked at the fact we had two car loans, two house loans, and were looking for a third car loan? No, that was pure greed and insanity. We did not fail to disclose anything.
In a country where corporate greed is the standard model, firmly supported and approved by the government, I don’t feel bad when a company is slapped by their own greed. It’s happened before, and it will happen again, and the unwillingness of the loan companies to work with people to save their homes is just a kick in the face (student loan companies are even worse). It’s the shrinking middle class that pays the price.
“The dot-com boom and bust, and now the housing market boom and bust. What’s next?”
My guess? Environmental/”green” technology.
As for the question of whether or not it’s appropriate to blame homeowners, I tend to take a generalized, voice-of-reason, “it depends” view.
I’m sure there are examples of homeowners who were put into mortgages by lenders with coercive tactics, or lenders who didn’t disclose everything. And those lenders should indeed be persecuted and prosecuted.
I’m also sure, though, that there are buyers who put themselves into risky mortgages because they didn’t bother to research their ramifications, or allowed themselves to get swept away in a home-buying frenzy. I confess I have less sympathy for anyone in that situation.
The issues of renters who find themselves in trouble because landlords got themselves in trouble is a thornier one, and I don’t quite know what to think about that.
But regardless of how pervasive the sub-prime mortgage crisis is, I think that individual cases are still indvidual cases, and where “blame” ought lie might well differ from Case A to Case B.