Okay, I’ve now officially had it.
On Zillow this morning there was a fathead complaining that one servicing lender was not modifying its mortgages in the way that suited him. He wanted them to be modified according to the government’s Making Home Affordable plan, instead of the way the servicer preferred. Leaving aside for a moment that he didn’t understand modification of any stripe, essentially he was complaining that a business was not voluntarily giving up enough money.
This is standard stuff, though. Everyone is complaining right now, because everyone is a victim. Boo hoo. Woe is me. It’s really quite difficult at the moment to find an adult to have a conversation with about mortgage finance. I expect that.
But then, the fathead trotted out that mortgage lenders ought to be dragged through the courts like Bernie Madoff. A week or so ago, a really smart financial planner decided to block me on Twitter because I asked her a tough question – specifically, isn’t it better for a family to have a shot at home ownership rather than being shut out of the process altogether? Isn’t it better to have a home for a few years, even if that home ends in foreclosure, than never to have had a chance to own one at all?
Having previously rented a house for many years myself, I flatly reject the idea that my family would be better off if we had never gotten a 100% stated-income subprime loan, which is EXACTLY what we have now. I reject the idea that we have been taken advantage of. I cannot, in fact, see ANY POSSIBLE WAY that a sane person could contend that we are victims of something.
And here is this fathead arguing that the loan my family and I – and MILLIONS OF OTHER FAMILIES – consider a fantastic blessing is somehow a prosecutable offense.
Well, now I’m really angry.
I was a loan officer during the insane first two-thirds of this decade. I personally made, and got for myself, 100% subprime loans. I made option-ARM loans. I made no-doc loans. I participated in practically every part of the home financing extravaganza. I was there, I did it all, and I don’t regret one second of it. In the interest of full disclosure, I have now had three clients default on loans that were made to them, all of them for investment properties and all of them done, originally, AS investment property loans. I still do not have a client that has lost his primary residence due to foreclosure. My clients understood their loans, because I explained them in detail. That’s what professionals do.
Regardless, even the BAD loan officers have something in common with the pros, and that is that the borrowers signed the bleeping documents. With a few obvious and rare exceptions, every single person that is being foreclosed on right now knew in advance that he was betting heavily on a risky proposition. There’s the celebrated NY Times financial columnist that is eight months delinquent on his house. My heart breaks. He’s still living in a very fancy house in a spectacular neighborhood. How, exactly, has he been taken advantage of?
It’s like we have no ability to understand what hardship consists of. Everything that doesn’t go exactly according to our most fevered dreams is somehow a tragedy? Nobody’s life is “ruined” by getting to live in an unsustainably large house for two years until reality sets back in and we have to rent a condo. But somehow, this is the end of all life on earth, to hear it told on the news. Yes, there were people that were outright lied to. This happens, and I fervently wish it did not. But the overwhelming majority of people “caught in the subprime meltdown” got caught in the famous monkey trap, where they simply will not let go of the acorn so they can get their hand out.
This is now the lenders’ fault. Never mind the pressure the lenders were under – don’t think I’ve forgotten this – to make sure everyone could participate in the American Dream. Because, you know, it isn’t fair that some people can afford houses and some can’t. So lenders came up with ways to extend credit even to people that had no business borrowing, because they knew they could lay off the risk, and besides, doesn’t real estate just go up and up in an ascending spiral forever?
Stupid, yes. Evil, no. Prosecutable, no. Lots of people are hyperventilating about all this. Just stop it. You’re embarrassing yourselves.
You want someone to take responsibility? Take it yourself. Take responsibility for having too much debt. Take responsibility for not having been conservative enough with your investments. Take responsibility for signing loan documents you didn’t understand. You’re trying to tell me you didn’t know that signing legal documents without a clear understanding of what is on them is stupid? Really? You didn’t know?
Stop feeling sorry for people that lived in bigger houses than they could afford. Here’s a tough question: would you rather live in a mud hut in the Andes or a 4200 sq ft house on half an acre in St Louis? But wait! Before you answer, if you choose the house in St. Louis you’ll be foreclosed on after three years!
Sigh.
I don’t even feel sorry for our children. I grant you that compounding the stupidity of saddling themselves with enormous debt, their parents are now electing politicians that think the best way to get rid of excess debt is to transfer it from those that incurred it to everyone altogether, sort of a tax on the sane (but then, that’s democracy, and that’s why it doesn’t work. Ask the Athenians). It’s okay. Most of our children were in a fair way to being ruined by having everything they wanted whenever they wanted it, and they’ll grow up substantially improved by the idea that they might have to work really hard and save for a long time before they can have what they want most. Hardship can be a blessing, if you handle it right. I still have some confidence that kids will handle things right, even if their parents are, by and large, spoiled rotten.
This was going to be a short rant, and has turned into a long one. I am not, really, depressed about our current situation. I think we’re going to be fine, though admittedly my definition of fine is a bit different from that of most people. But please, please, people. Stop blaming the lenders. Stop blaming the brokers. Stop looking around for somewhere else to put the blame.
It belongs to all of us.
Tags: mortgage industry, mortgage lending, mortgage loans, personal responsibility, subprime
Posted on Tuesday, 19th May 2009 by chrisjones
Posted in Blog & News, General | Comments (4)
May 19th, 2009 at 12:40 pm
Wow, what a rant. I’ve just started shopping for mortgages and was browsing your site and services, and you do have some helpful information. But then I came across this post. It’s intellectually embarrassing and helped me realize we likely don’t view mortgages the same way. (You suggest it would be better for a family to own a home for several years ending in foreclosure? Absolutely not. It would be better for them to a) be in a more reasonable mortgage or b) continue renting so they don’t destroy their credit.)
If you’re willing to suggest other lenders in the business, I’m still researching. Thanks!
May 19th, 2009 at 1:48 pm
Shawn-
I appreciate your being willing to say what you think. And I do not disagree, mostly. I obviously did not make my point very well.
What I meant to say was – we need to stop treating the homeowner that gets over his head as the victim of some nefarious plot, and looking about for someone to punish. Your point about being in a “more reasonable” mortgage is well taken. No quibble.
But you don’t know what would be best for them, necessarily. There are families – mine is one – that have grown tremendously through being responsible for the property they own, even though we could not have qualified under traditional guidelines. The mortgage is hard to pay, especially as the industry I work in is being systematically destroyed. Still, under no conditions would I go back, and this was the only way forward.
I got the only mortgage that was available to me at the time. I’d love to get out of it, but the increasing restrictions on mortgage financing make that impossible for me, so I have to stick with what I got. I’m not bellyaching about it (this was my largest point). I got here on purpose and I knew this was possible. I will deal. That’s all I’m asking people to do. Own up to the risks that they took, deal with the situation they’re in, and stop trying to make themselves into virtuous martyrs that were fleeced by people that deceived them.
But as far as advice goes, if your comment encapsulates yours, I don’t think we look at mortgages all that differently. I might shade more toward trying to get a family into their own house when it’s difficult, because I’ve seen some magical things happen in those cases. But in general, my advice is to take as little debt as possible, pay everything off as fast as you can, and take responsibility for your own actions with regard to that.
Is that off base?
May 20th, 2009 at 1:51 pm
Thanks for the clarification; I don’t view it as off base. Yes, I do agree that people do need to own up to the risks they took. For example, those that grossly exaggerated their stated income to get a larger loan — likely in anticipation the investment would pay thousands in a few years.
I do know some of those people were too trusting and mislead because of greed. For those in this category, yes, they should have been more aware. But I also fault the lenders & brokers that persuaded buyers into outrageous loans. Just because an unknowing buyer signed the papers doesn’t excuse the dishonesty (whatever shade of gray) by those trusted to be the experts.
Let’s hope the market starts to rebound soon (but just not before I complete my house purchase!)
May 20th, 2009 at 3:53 pm
I don’t ever say that there isn’t enough blame to go around. There certainly is.
It all stems, unfortunately, from the inability of the system to keep risk straight. If the selling lender has to keep the liability for the loan, all this madness goes away. But that didn’t happen, though there have been steps taken since to address that.
I long have agitated for loan products that would spread the compensation for brokers over a period of time instead of paying it all up front. This would realign the incentives and make them more compatible with writing persistent, quality business, instead of whatever pays the most right now.
Alas. That isn’t going to happen any time soon.
Good luck with your search. If there is any way I can be helpful – I’d be happy to refer people – let me know.