I've got a great idea - if we have a problem with risky lending and risky borrowing, we should enact laws which encourage more risky lending and risky borrowing.
If there is fraud, prosecute it. But don't use a single penny of taxpayer money to bail out lenders or borrowers who knew (or should have known) they were engaging in a risky behavior and now expect all of us to bail them out of it.
This "solution" is worse than the problem it is supposed to address, and will only make that problem worse.
Encouraging risky behavior seems to be in style these days. Bailing out people is even more popular. What do they call it, moral hazard? The same thing is going to happen in the bottomland farms that flooded near the Mississippi. You know I hate to see those farmers lose out with crazy good prices, but everybody should know that those farm lands are prone to extra-ordinary risk. And I don't care to pay taxes to subsidize risk taking farmers or homebuyers.
How is this different than people who choose to live in risky locations being bailed out by the government? Hurricanes in Florida are routine, Landslides in California, etc. Tornadoes are unpredictable in terms of where they land but there are billions spent to "bail out" people who live in predictably risky locations.
Yeah, I think programs should be drafted to ensure that any homeowner who did not properly educate themselves before being talked into a ridiculous mortgage gets the proper education and aid to transition to a reasonable mortgage.
Those loan agencies that cheated on thousands of documents should not be bailed out, they should all go to jail.
"Yeah, I think programs should be drafted to ensure that any homeowner who did not properly educate themselves before being talked into a ridiculous mortgage gets the proper education and aid to transition to a reasonable mortgage."
I agree, but only for first-time homeowners who are in trouble on the mortgages on their only residence. How many people do you think this is? I suspect that $300 billion is enough to actually pay off the mortgages of everyone who actually needs assistance.
"Those loan agencies that cheated on thousands of documents should not be bailed out, they should all go to jail."
I also agree. So should the Senators who got sweetheart mortgages for themselves, while using tax dollars to bail out the mortgage companies who issued bad loans.
If there is fraud, prosecute it. But don't use a single penny of taxpayer money to bail out lenders or borrowers who knew (or should have known) they were engaging in a risky behavior and now expect all of us to bail them out of it.
The difficulties are the concepts of fraud and should have known. Many mortgages issued, especially to low income or elderly homeowners, were to individuals who are incapable of understanding the documents they signed, and who sometimes were decevied about the terms. The line between this and "should have know" is often very fuzzy.
The mortgage crisis is a situation that could have been prevented or at least made less serious or crisis if more government oversight hadf existed.
Michael Fuerst
All that needs to be done to stop all of these forms of malfesance is to place legal fiduciary responsibility on each individual involved in the loan process. This would end it tomorrow. The loan companies not only lied, but also changed loan applications. This was done to first time home owners as well as people who were refinancing. Some of the people obtaining loans might not have known to check and double check, but even if this had been done if a document was changed after signing how would one know until way too late. The people who work in this field have been aware of the problem since 1999. This is nothing more than elimiation of regulations and a repeat of the savings and loan fiasco that cost you and me, the taxpayers.
So what are each and everyone of you going to do to express to your legislatures this distain expressed here that the loan companies and legislators with sweet heart deals ought to be culpable and not bailed out? Have you called your congress person?
Pattsi Petrie
Some of the people obtaining loans might not have known to check and double check, but even if this had been done if a document was changed after signing how would one know until way too late.
You make a lot of ridiculous comments on this site, but this one is really over the top.
Being married to an attorney who makes her sole bread and butter on foreclosures, I can fill y'all in a little. Foreclosures aren't rampant. They have doubled, but that is all. Most properties south of I-80 that go into foreclosure are valued at less than $60K and are not primary residences. Yes, that is correct, most are rental or "investment" properties owned by landlords who overextended themselves or else simply decided to take out a loan for five properties, collect the rents for two years and never pay back the bank. How scandalous.
This bill is garbage. It won't help anybody. Those that it is supposedly intended to assist can't afford their notes anyway and the bailout will only help the banks. Let's face it, if you didn't save 10-20% for a down payment and you're paying more than 25% of your monthly net for your mortgage, you overextended yourself and you're going to suffer until you correct your finances.
The myth of scandalous brokers and people who were conned is simply that, a myth. These people represent less than 10% of those being foreclosed. The real suckers are those dingleberries who took out 125% sub-prime notes based on an inflated appraisal. Let's see a show of hands for how many people think that was a smart move?
Exactly.
No, you're wrong Prairie Biker. Pattsi just broke the story that the mortgage crisis has been caused by mortgage lenders changing the mortgage paperwork after clueless borrowers leave their offices. Then they all get together after work to joke over martinis about all of the people they screwed. And it all happens because, you know, there just isn't enough regulation in the mortgage process.
While I'm sure that there have been instances of crooked lenders changing paperwork after a closing, I'm also just as sure the the number of instances of it must be very, very small. It's much, much too easy to get caught, especially as most borrowers also keep a copy of the paperwork from the closing.
If anyone has any evidence that the practice of changing paperwork after a closing is more common than that, I'd love to see it. I just find it difficult to believe that it happened more than a handful of times.
I'm refinancing my ARM now. It is not favorable. Clearly I must have been "targeted" through deceptive practices or "hit" by the shady bankers who changed my paperwork behind my back.
This has gone way over the top. We are not victims. We made the wrong business decision among several fair choices.
In response to IP--the number of individuals whose documents were altered is, indeed, lower than some of the other issues. Nonetheless, the major point is that the onus to prove such is on the shoulders of the individual who claims the documents were altered because there is no fiduciary responsibility by law on those involved in the loan process. This individual is more than likely not in a financial situation to bring suit. Again I refer folks to the research and data being collected that is enabling the large picture to be assembled to finally see the extent of this problem. One of the facts that I found facinating during the workshop is that the data so far collected overlaps in areas to those targeted for redlining. If in fact, this data continues to indicate such there is even more to the story than has been discussed in most of the press. I can not agree with B is for Business that all of these people made decisions based on a level playing field. The data is clear that many loan officers charged more for the processing of the loan than ought to have been, especially for people with the best credit rating. The loan officers had the incentive to do so because of the bonuses and the loanee would have no idea of the various ranges from A to D for fees. There is data for this and it has been in the press. Go read the data and research. I provided a beginning of information. There is more available.
Pattsi Petrie
It seems to me that this whole mess was a result of the deregulation pushed through at the end of the last century by the Republican-controlled congress. Specifically Phill Gramm, John McCain's lead economic advisor. There were rules against mixing mortgages and the market. Those rules are gone. To see the result, I would suggest a listen to this amazing piece of radio:
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1242
People were dealing mortgages like it was their last night in Vegas. It is not enough to sniff away the gullible borrowers as stupid people. You also have to try to understand why in the world banks would loan money to people who had very few assets and very little chance of paying off the loan. That is just bad business practice. So why would they do it? What was the motivation on the part of the bankers (who, I admit, were hardly in the back room whiting out details of the contracts).
Mortgages and the market are not a good mix. Even a blind man can see that much.
PB, it depends what you count. I personally know of half a dozen lenders who as a habit encouraged borrower to lie on their income statements without explaining what the significance of that was. I also wouldn't be surprised in the vast majority of decent, intelligent Americans couldn't tell you the significance of it on their own.
Attempted simple explanation of a very complex catastrophe: Transfer and dilution of risk.
Back in the day, your mortgage was financed by your local lender. That lender qualified you for the loan and took on the risk. Low/no down payment, interest-only, and reverse amortization loans simply didn't exist (with a few exceptions), but local lenders would never have offered them anyway because the risks were too high.
The advent of the secondary mortgage market in the 1970s made it possible for those local lenders to sell off their mortgages, thereby offloading their risk. The secondary mortgage market had its good points -- higher efficiency in lending led to lower rates, and investors who normally wouldn't touch whole home loans were attracted to the new CMOs (collateralized mortgage obligations) that grouped loans together to take advantage of diversity and distributed risk.
Now add the new loans -- expanded ARM offerings, low doc / no doc loans, and the others mentioned above, and combine these factors with the local lenders' ability to offload their risks to players above them in the mortgage food chain, and you have created the environment that caused our current woes: home buyers encouraged by new financing tricks to buy homes they couldn't possibly afford, supported by lenders who wouldn't be taking on the risk anyway, because the CMO- and CDO-producing aggregators were constantly inventing new ways to mix those loans up in order to hide how risky their investment vehicles really were.
As it all boils over, you get Bear-Stearns, Citi, Countrywide, et al in the news and folks get hauled off to jail. Builders big and small suffer or go out of business (Toll Brothers, Levitt, etc.) Homeowners get the double whammy of finding themselves with mortgages they can't cover and houses they can't sell in a depressed market. There has been and will continue to be widespread suffering, and although I think some limited intervention could be effective, most measures that have been suggested or are in the works are band-aids.
I guess I can't wear my bleeding heart button today.
PB, it depends what you count. I personally know of half a dozen lenders who as a habit encouraged borrower to lie on their income statements without explaining what the significance of that was. I also wouldn't be surprised in the vast majority of decent, intelligent Americans couldn't tell you the significance of it on their own.
That's interesting - I got a house last year and worked with Lois Gennaro on the mortgage stuff. IIRC, she made me bring in proof of income and assets, and was very careful about making sure that all the information we submitted was accurate. She was very polite and just said that the law required it. Later, I read a news story about someone getting indicted for submitting an application with false information and understood why she'd been so careful.
xian, I don't believe you. I think you're lying. Live in an apartment don't you? I don't think you know any mortgage lenders and I certainly don't think they'd share evidence of their criminal misdoings with a mealy-mouthed blogger to share on the internets. puh-lease.
politicalchemy has a very good hold of the behind the scenes dealings. Most mortgages written are designed to be sold in order to off-load the risk. The original lender doesn't care that you can't handle your payment. They aren't going to be on the hook for it. In fact, we know of only one lender that as a policy, does NOT sell the notes they write: CitiBank/CitiFinancial. However, I don't think it's fair to blame marketplace deregulation. Let's face it, if you can't afford something, you shouldn't buy it. If you lose it or are in danger of losing it because you can't afford to make the payments, wah. Cry me a river. I guess you shouldn't have bought it then.
While I generally disagree with Pattsi's paranoia, there are cases of people being duped by being told one thing and then being given completely different terms to sign at their closings. Is this the fault of "unscrupulous" lenders or careless borrowers who didn't read what they were being given to sign? I generally take the view that people are responsible for their own dealings and if you don't read/understand what you are signing, you deserve what's coming to you.
This is not to say that I don't have sympathy for those who lose their homes because they were laid off or were suddenly faced with catastrophic medical bills. I do, but those cases are the exception, not the rule. I'm also quite sure that banks are more than willing to work with those people to help them find a solution before they get so far behind they can't dig themselves out. However, 95% of foreclosure defendants don't even bother to defend their cases or seek alternative solutions. I think that in itself is pretty darn telling.
"xian, I don't believe you. I think you're lying. Live in an apartment don't you? I don't think you know any mortgage lenders and I certainly don't think they'd share evidence of their criminal misdoings with a mealy-mouthed blogger to share on the internets. puh-lease."
Whoa. Please try to be civil.
Just to clarify to Prairie Biker--my comments are based the data that I have looked at. This has nothing to do with paranoia. Look at the date so we can continue the conversation.
Pattsi Petrie
"Just to clarify to Prairie Biker--my comments are based the data that I have looked at."
I'd love to see data on how many mortgages were changed after closing, and the methodolgy/evidence used to obtain that data.
Most mortgages written are designed to be sold in order to off-load the risk. The original lender doesn't care that you can't handle your payment. They aren't going to be on the hook for it. In fact, we know of only one lender that as a policy, does NOT sell the notes they write: CitiBank/CitiFinancial. However, I don't think it's fair to blame marketplace deregulation.
I think this is a good description of what happened, but I disagree that deregulation isn't to blame here. The laws that Republicans have passed in the last ten years have allowed financial insitutions to package mortgages as securities. Essentially opening up the mortgage industry to investment. When this happens, the investment community will inevitably find new and improved ways to sell more mortgages. The more mortgages you sell, the more you can trade, and so forth.
Thus we get "sub-prime" and other creative ways to lend money to people who have no business borrowing. No doubt the suckers shouldn't have taken the bait, but isn't this also a prime example of what happens when we let the bankers regulate themselves?
We've been here before. There are reasons why we have regulations. It is a shame so many people forget so quickly.
D. Boon-
Thanks for the link to the radio episode, good stuff there.
To IP and Banker Lady--what can I say since folks obviously are not looking at the references posted. Within those references, here is an interest studying www.responsiblelending.org/pdfs/rr011-unfair_lending-0506.pdf I am certain that the authors, when the study was finished, went off laughingly to have several drinks. :-)
Pattsi Petrie
Here are recent articles about Redlining Redux
http://www.woodstockinst.org/for-the-press/woodstock-in-the-news/loan-report-finds-%91reverse-redlining%92-in-hub-(banker-&-tradesman)/
http://washingtonindependent.com/view/subprime-loans-and
http://washingtonindependent.com/view/reconsidering
http://www.nhi.org/online/issues/139/redlining.html
http://www.thehousingsite.org/lending_laws/subprime_loans.php
Pattsi Petrie
pattsi- I have tried to follow your logic here giving you the benfit of the doubt, but your "references" are simply too vague. Title pages, search results, and file not found pages (your most recent link) do little to support your claims. How about a direct link to specific proof of what you are claiming?
Cheesy poofs--my sincerest apologies for a url that does not work. There is nothing more frustrating when sharing information.
I have cut and pasted the url this time so I hope that it will work now. It works for me. I am also pasting in the preceding web page where one will find the report listed toward the bottom of the page. Let me know if these do not work. I think all of the other urls posted are working.
http://www.responsiblelending.org/pdfs/rr011-Unfair_Lending-0506.pdf
http://www.responsiblelending.org/issues/mortgage/research/page.jsp?itemID=29371010
http://www.responsiblelending.org/research/reports.html
Apologies again, Pattsi Petrie
I live in an apartment.
I have worked in mortgage lending in the last 10 years. (Really fun job, I really liked it; too bad my boss was an idiot and the company went broke and got bought out.)
My brother in Chicago tried his hand in mortgage banking almost 3 years ago, just as the market started to blow up. He's back to working in computer security and describes that year as his "sabbatical".
If you have philosophical and/or political differences with Xian, you are allowed to state those.
But please remember he is living in the "big city" and very well may have acquaintances who work in mortgage banking, even though he lives in an apartment.
Take care, PrairieBiker! Hope to see you back soon!
My wife and I own a condo. I know a number of loan officers, most of whom got in during the boom. I also find that people choose to tell their deepest darkest secrets to me. I'm not sure why. Maybe because I'm pretty good to them.
peace
To cheesy poofs--I will try to post this message again. Sorry that the url did not work and I caused you frustration. Let me try again.
Here is the url that will take you to a summary and a PDF of the report
http://www.responsiblelending.org/issues/mortgage/research/page.jsp?itemID=29371010
This url will take you to a list of all of the research reports http://www.responsiblelending.org/research/reports.html
Let me know if you are still having problems, Pattsi Petrie
Well then xian, now we all know you're not really the hard working martyr of the under-privileged you always claim to be. A real martyr would turn his friends in for trying to screw the poor. I know I'd turn in my friends if they confessed to me that they were involved in such a fraud.
As my mentor said, "You may be asked by your principles and situation to become a martyr, but no one should seek to be a martyr."
As to your second point, I believe that is precisely why people tell me secrets. If you want to learn more about these practices and their pervasiveness, please consult the series of NPR stories on the matter.
I know I'd turn in my friends if they confessed to me that they were involved in such a fraud.
You have friends? I sincerely hope you treat them better than the way you go after complete strangers on this blog.
Well, there you have it. Xian, by his own admission, would rather protect his friends while they make an illegal buck at the expense of someone else's life savings, than uphold justice and the rule of law. That right there is the true measure of the man.
Xian, I sincerely hope that's not what you're teaching the kids in your classes. How do you believe that you are even minimally morally qualified to teach? How do you sleep at night?
Do I need to lock the thread, or can we please return to discussing the mortgage bailout rather than the character of xian and prairie biker?
Actually Gordy, if you look at it, my comment (that you declined to publish, as opposed to Boon's) concerning the criminal nature of xian covering up for his friends is exactly on point and a serious part of the mortgage problem. Since guys like xian don't seem to think it's necessary to report criminal activity and fraud, that activity will continue.
xian, be part of the solution, not the problem.
This has been a stimulating conversation about what is happening with the housing situation. Here is an interesting article, "What is a Housing Crisis?" written by Peter Drier, planning professor at USC. It is published National Housing Institute Rooflines. It can be read here http://www.rooflines.org/1009/what_is_a_housing_crisis Are we in a housing crisis?
Pattsi Petrie
Well, there you have it. Xian, by his own admission, would rather protect his friends while they make an illegal buck at the expense of someone else's life savings, than uphold justice and the rule of law. That right there is the true measure of the man.
Xian, I sincerely hope that's not what you're teaching the kids in your classes. How do you believe that you are even minimally morally qualified to teach? How do you sleep at night?
I sleep quite well knowing that I have some clue how the criminal justice system works. I also sleep well knowing that some eagerly embrace the rule of law in this country and others question it critically, and the difference is not moral fiber but in life experience. My experience is that none of the thousands upon thousands of loan officers who engaged in this identical common practice, that I imagine anyone who bought property in a major metropolitan area in the period in question also experienced. I was not witness to any criminal activity except for when we talked our loan officer out of falsfying our income, so I don't know what I'm supposed to turn someone in on. If I saw mass prosections, I would eagerly call upon my acquaintances and friends to turn themselves in. Perhaps it's just my perception and I'm the only one who feels this way, but you seem to be an extraordinarily abrasive person. You began by calling me a liar, and when you were shown to be a dangerous fool, rather than apologize, you attacked from a different angle. That would make me question if you belong in ANY profession. But I'm not too concerned--everyone has their own style and I'm not the job arbitor for everyone in the society. I hope you have pleasant dreams. But if anyone ever wonders why we can't simply have civil discussion to determine between opposing viewpoints what is best for our society, they should just dissect you (psychologically not literally ;)) and figure out what the cause is.
Incidentally, I wouldn't call any of them "friends". I have no friends, only "comrades".
*waits for another low-self-esteem "friend" to go berserk*
Maybe it's not that there are thousands of corrupt loan officers but that you just hang out with a few bad Bolshevik's. You know just a few can ruin a good goulash.
"I personally know of half a dozen lenders who as a habit encouraged borrower to lie on their income statements without explaining what the significance of that was."
So your "life experience" somehow excuses your failure to report fraud?
Perhaps I'm being naive here, but isn't one the reasons why banks have federal insurance is to offset any financial hits that result from foreclosures? I think there needs to be a distinction made between banks and mortgage brokers. Established banks are able to handle government loans such as VA and FHA and often HUD requires a first time homebuyer to take a course in buying a home. I utilized an FHA program when I purchased my house and I had to take a class as part of taking out a loan. I also hired an attorney to go over the paperwork to make sure that everything was in proper order.
Mortgage brokers are the ones that sometimes give lenders a bad name. After all we are talking about companies that pay their employees commision for the mortages and refinances they are able to sell. Personally I think the credit and lending industries need an overhaul so that consumers are not subject to predatory practices. For borrowers who can show an ability to pay for a refinanced mortgage on a principal residence I think it's reasonable to develop ways to help these individuals out. One of my neighbors got sucked into a risky refinance and ended up having her home foreclosed on. Finding a place to rent when your credit is trashed can be a real challenge and she ended up renting a place with her boyfriend and the lease is in his name. She is fairly lucky. It could be said that she liked the financial savvy to be able to make intelligent choices but I have yet to see how the system can monitor and weed out stupidity. A former co-worker of mine bought a house for herself and her kids and I had to explain to her concepts such as a credit score and how she was able to qualify after a divorce put her in bankruptcy.
If we look at history there is evidence that govenment intervention has resulted in making some effective and solid changes. When the great depression hit there were homeowners who lost their houses not because they weren't paying the mortgages, but because the banks called in the notes when they faced a financial crisis. The setup during that time was the lender had the power to demand borrowers to pay the balance of a mortgage and that is how borrowers who were making their payments ended up losing their houses. Now banks and lenders have to go through a process before foreclosing on a home and only when the borrower has defaulted on the payments. Perhaps it's time we take another look at the practices in banking and lending so that both lenders and borrowers can protect themselves against risky loans.
Peace, Marti
"I personally know of half a dozen lenders who as a habit encouraged borrower to lie on their income statements without explaining what the significance of that was."
So your "life experience" somehow excuses your failure to report fraud?
How could I report fraud? Please walk me through the steps... Do you understand what the words "I personally know of..." mean?
That doesn't mean I sat in the room with the people and a video camera as they committed fraud. I was in the room when we were encouraged to lie on our statement and then again in a room where people agreed that that was a common industry standard.