Thousands of poor people like Dorothy Levey, who worked for years to build modest amounts of equity in their homes, have been hammered ”” wiped out. The most unscrupulous of the mortgage lenders, and there were many of them, swooped in and sweet-talked their targets into signing contracts designed to squeeze them for everything they had in the world.
The fact that this is often legal doesn’t make it right. As insane as it sounds, Ms. Levey is still getting offers to refinance her mortgage.
There is some truth to the assertion that a lot of buyers signed up for deals they should have known they couldn’t afford. But it won’t do for the fat cats to fall back on empty phrases like “buyer beware.”
The subprime mortgage frenzy was a shameful, highly-charged phenomenon, motivated by greed and played out on a field of rampant exploitation. The victims deserved more protection than they got. As Paul Leonard, director of the California office of the Center for Responsible Lending, told me this week: “You shouldn’t have a marketplace that’s a ”˜buyer beware’ marketplace for the most important financial transaction of most people’s lives.”
It’s not too much to ask that when Americans of modest means put their economic futures on the line, we have regulations in place to see that they are not ripped off.
If you think this is a small matter, consider that the center reported a year ago that subprime loans represented roughly a quarter of all home loans in the U.S., and that an estimated 2.2 million households in the subprime market would ultimately face foreclosure.
Update: A related article is here.
I can sympathize, but at some point we just have to say “tough.” You cannot regulate away ignorance. People simply must acquaint themselves with the basics of life’s mechanisms. Taking out a mortgage already involves reams of paper and regulatory disclosures. It’s quite possible that they are having the opposite effect as intended: giving people a false sense of security that they are fully aware of the implications of the transaction they are entering into.
I shopped before making my last mortgage and though it appeared that a few of them mkight be slightly favorable and most would be very unfavorable, I went back to our little old country bank and did the mortgage there. I paid just a bit more but we trust each other and I didn’t need to study the fine print, what little there was, quite so carefully. I’m happy, they are happy, and I don’t have to worry who will be managing my mortgage next month as they sell none.
I rather agree with Jeffersonian that the 20 signatures to get mortgage is far beyond rediculous and meddling by government.
Even more rediculous is that in Wisconsin we have a 3-day right of recision. I told my banker that I thought such a thing was immoral. I then told him I wanted my stockbroker offer 3-day right of recision sales. 🙂 Well, he laughed!
In all these things it is government that is the problem – not the solution.
Well, Mr Herbert, it is not just lenders who can be “shameful” and “motivated by greed”. What about buyers who insist on a bigger house than they can afford?
The government foolishly encourages indebtedness by making deductible the interest paid on home mortgages. They should eliminate this deduction, then lower tax rates for everyone accordingly. Each family should decide for themselves whether they should rent or buy, without the government’s thumb weighing down one side of the scale.
Also, we should probably outlaw fluctuating rate loans for home mortgages. They cause too many problems for people like Mrs Levey, who either don’t understand them, or are too optimistic about their ability to pay when the rates go up.
I agree that the govt needs to quit subsidising the interest on >100% of the home’s value. It probably also needs to reduce the mortgage interest deduction, too. That just encourages people to borrow out of their homes. It also has the tendency to unrealisticly heat up the real estate market because people owe so much on their houses that they have to sell at ever higher prices.
The problem, of course, with reducing the home interest deduction is that the govt will NOT lower the tax rate in proportion. It will just keep the difference and we will all be that much poorer.
I would be in favor the “fair tax”, where everyone gets the same deduction no matter what. Each year, the gov’t picks a certain multiple of the poverty level and all taxes collected (sales tax only) below that level are sent back to the taxpayer. That means that the poor get all their taxes returned to them at the end of the year. The wealthy still get the same money amount back, so the wealthy still pay the majority of the taxes, as they do now. I would like the government to tax economic activity and purchases, NOT income and property. That would REALLY encourage saving and investing, not spending and borrowing.
These articles (especially the “related” one) regrettably conflate multiple problems. Much of the discussion is not about subprime loans, but rather loans to A credit borrowers. Furthermore, the authors always seem to assume that the only subprime loans were 2/28s. I have clients who got 30-year fixed, jumbo subprime loans at rates as low as 4.5%. A real problem is that very few loan originators have any financial education or training. Then the lenders offered loan originators obscene rebates to put their clients into horrible loans. And notice that the articles don’t even talk about the worst type of loans, the negative amortization Option ARMs that in many cases are adding $1500/mo to the loan balances (and have actual interest rates sometimes exceeding 9%). Finally, you have the media, more interested in (or capable only of) sensational and misleading headlines than in really educating the public. These factors have all combine to stampede the public and create a perfect storm of a financial crisis that should have been a minor adjustment.
On one side we have the “..demons that speak like truth..” and on the other side we have those willing enough to believe. Would that the “demons” also be held accountable for their stretching of truth so that which looks like truth is full of lies and corruption. Let the lenders be forced to cough up some of the payments.