"underwater" mortgages
I'm not sure that I agree with helping people just because they owe more on their mortgage than their house is worth. Unless there has been a substantial change to income or payment, why do they need help? They were able to make the payments when they innitiated the loan, why wouldn't they be able to make payments now? The value of their property is bound to increase in time.
When you drive a brand new car off of the lot, its value decreases dramatically. If you financed the entire amount, you would then owe more than it is worth. There's never been a suggestion that people in that situation need help.
Am I missing something?
Well, I think "helping people who owe more on their mortgage than their house is worth" is the ostensible reason. What is really going on relates to the old saying: If you owe the bank $250,000. and you can't pay, you've got a problem. If you owe the bank $250,000,000,000. and you can't pay, the bank has a problem.
This is not about helping out "the little guy." While that may be the expressed reason and may collaterally happen, this is about saving the fat pensions and keeping that game alive long past bedtime.
There's also the issue of 'fairness'. Businesses have been defaulting on their own 'bad' debt left and right; why should an individual not have the same recourse? If it's good enough for Wall Street, why is the consumer held to a higher standard? :eyebrow:
That is how the debbil injects his evility into our personages. :lol:
Sauce for the goose is sauce for the gander.
Am I missing something?
Yes, I think so. But I'm pretty sure it's chromosomal, so I don't think there's anything to be done about it.
There's also the issue of 'fairness'. Businesses have been defaulting on their own 'bad' debt left and right; why should an individual not have the same recourse? If it's good enough for Wall Street, why is the consumer held to a higher standard? :eyebrow:
Now Pie darling,
everyone can't be thieves. There has to be someone who is stolen
from.
Sauce for the goose is sauce for the gander.
But it's a bitter sauce. Not fit for humans. Tempting...all colorful and pretty, but not good for the masses. Kinda like caviar. :)
SO FUCKIN' FIX IT!
Why are there two sets of rules?
SO FUCKIN' FIX IT!
Why are there two sets of rules?
I don't have that kind of money. :(
There's also the issue of 'fairness'. Businesses have been defaulting on their own 'bad' debt left and right; why should an individual not have the same recourse? If it's good enough for Wall Street, why is the consumer held to a higher standard? :eyebrow:
seriously. are you suggesting that it should be alright for a mortgage holder to default on their loan because the value of the collateral is not what it once was...BECAUSE some businesses have defaulted on their obligations?
Seriously?
One of the huge problems in our society is people can't stand if someone is getting something they're not getting, or someone else is getting one over and they're not.
I won't succumb. I got nuttin' but it's all my nuttin' and it's honest nuttin'.
Yea, there is a new found class warfare. People who have less want the people who have more to give them some of what they don't have.
seriously. are you suggesting that it should be alright for a mortgage holder to default on their loan because the value of the collateral is not what it once was...BECAUSE some businesses have defaulted on their obligations?
Seriously?
No. I am advocating that businesses
not be allowed to do exactly that if their investments or speculations don't pan out.
Dual standards of morality are hypocritical.
One of the huge problems in our society is people can't stand if someone is getting something they're not getting, or someone else is getting one over and they're not.
I won't succumb. I got nuttin' but it's all my nuttin' and it's honest nuttin'.
I want some of your nuttin'! I wanna have twice as much nuttin' as you got!
Yea, there is a new found class warfare. People who have less want the people who have more to give them some of what they don't have.
That
is new. The old way was for the people who have more to want the people who have less to give them ALL of what they don't have.
That is new. The old way was for the people who have more to want the people who have less to give them ALL of what they don't have.
And this is why they steal and thieve, the rat bastards. Gimme gimme gimme. I doubt the way to fight them is to join them. At the very least, they have my unmitigated disdain. :rolleyes:
Punchline:
"Remember what ever you wish for I give your worst enemy double."
"OK, give me a billion dollars and beat me half to death."
SO FUCKIN' FIX IT!
Why are there two sets of rules?
There's only "the Golden Rule"
i.e. Whoever has the gold makes the rules.
So at the risk of repeating myself..
A friend of mine, both him and his wife, realatively speaking, blue collar workers, bought a house in 2004 that was way above his means. His thought was that he would try to "flip" the house. He got it at a good price for a short sale at $490k, it was originally sold at around $650k.
Well, he couldn't make a go of it and him and his wife got divorced, defaulted on the loan, and are now seeking assistance from the gobberment.
Why the fuck should we pay for this idiots bad investiment failures?
Guess what.
We are going to pay for him to get out of his loan.
Some/many of the underwater mortgages are because they were ARM's where the payments were lower in the beginning and then increased as time went on. This is how those who really couldn't afford a home with a conventional mortgage became homeowners.
As the value of the home increased many of them bought up into another home they couldn't afford with a conventional mortgage or they refinanced into/with, yet another ARM keeping their payments artificially low and marginally affordable.
Once the values of the home stopped increasing and started to decrease, the amount owed became larger than the value of the home and the payments increased as is the way an ARM is designed. Hence unmanageable payments on a home that is worth less than the amount borrowed.
Stupidity/ignorance and/or predatory lending - take your pick. Either way, those who were not stupid/ignorant and/or bought into the predatory lending are going to pay. Whether they go under or the mortgage is refinanced.
Oh and the others are friends of Merc's - blame him!
Some/many of the underwater mortgages are because they were ARM's where the payments were lower in the beginning and then increased as time went on. ...
I would never ever never ever never do an ARM
I would never ever never ever never do an ARM
ever
Why the fuck should we pay for this idiots bad investment failures?
And... why the fuck did we pay GM, AIG, Bear Stearns?
Bad planning, bad decision-making. Exactly the same logic.
No offense, Pie, but are you just becoming aware of all this? ;)
but but but ... the gubb-mint said it was good for us!
I bet not, but April 15th is right around the corner. Like a punch in the nose, it focuses the mind.
And before you get all bent on the ARM spexxie - They do serve a purpose when used properly and in the right application.
Just because PEOPLE and Lenders abused their design for their own profits...
Guns don't kill people, ARM's do!
No offense, Pie, but are you just becoming aware of all this? ;)
No.
I get really bent out of shape when I see the double-standard being promulgated as FUD.
Personally, I am
for (limited) federal bail-outs for individuals. For exactly the same reasons that TARP and/or corporate bail-outs made sense.
I don't even know what FUD is. :(
And before you get all bent on the ARM spexxie - They do serve a purpose when used properly and in the right application.
Knowledgeable investors have been using arms to 'flip' houses for a long time. Makes perfect sense for them, paying the minimum interest for the short time that they improve the property before resale. Takes the right house in the right location and often a partnership between contractor/construction people and RE agents - same partnerships that are often already building new homes in the area so they're all ready to go with it.
The idea caught on and lots of clueless idiots thought they'd do the same thing without actually having any idea how to do it. Other people just bought too much house. I have a hard time excusing either of these. Predatory lending my ass - unless you were lied to outright, lending is a FAVOR.
It's like a few years ago when people suddenly realized that the rent-to-own option means you pay a fuckton more in the end and were mad at the businesses that offered even that option. Dumbasses.
Dumbasses.
That pretty much sums it up.
However, when I got my place the ARM was presented in a way that as my income rose ...
"You'll be making so much more in 5 years...it won't be a problem..."
"Think of all the money you'll save if you move..."
"Look at how much better a house you can get for the same payments"
Unfortunately for him, I knew what an ARM was an it was absolutely NOT right for me or my situation.
Never mind. I really didn't care what FUD meant, anyhow.
Fudd
[youtube]KwPRRSiUWzQ[/youtube]
HA HA HA - WTFud?
[COLOR="LemonChiffon"]I dunno either[/COLO]
I just lol'd at the color being "LemonChiffon"
You should take a look at the
standard web colors. LemonChiffon is also known as #FFFACD or 255 250 205.
You may also enjoy such shades as PapayaWhip, Peru, PeachPuff, or BlanchedAlmond.
Your wikipedia entry was correct.
It means that the D's are employing the same tactics as the R's.
They just have a different twist to their sales pitch.
And before you get all bent on the ARM spexxie - They do serve a purpose when used properly and in the right application.
Just because PEOPLE and Lenders abused their design for their own profits...
Guns don't kill people, ARM's do!
Thanks, but I'll pass on the ARM. If there's a chance that I'll get fucked, I WILL get fucked.
I am very risk averse
We had an ARM at one point. Re-fi'd it in 2007 to a 15-year fixed. We had advise from some very smart people when we went into it; we got out of it (a year before the adjustable part was scheduled to kick in) largely due to orthogonal circumstances.
Now-a-days, we all know better. But back then it wasn't seen as a risky thing at all.
I'd give my right arm for the right ARM.
(I don't know anything...not a homeowner here, just a court jester) :biggrinje
Fear, Uncertainty, Doubt.
When I re-fied my house the bank had a mortgage broker who looked at my numbers and told me
"Well, you probably made more than that and you just forgot some cash payments made to you. The bank is looking for $XYZ so, I'll just put down that you made XYZ.
When I signed I had to state that all the info was true.
They covered their ass. even though they told me exactly what lie to make, they also told me I wasn't supposed to lie.
It's a game and if you fuck up it is still your fault. No one dragged me into the bank and forced me to sign anything.
I feel bad for the dumb ass immigrants who spent all their life's savings buying the Brooklyn Bridge, but in any ecosystem it's the predators who keep the herd strong.
It's a little easier to be detached about it when you are hearing Marlin Perkins do a V.O.
Now-a-days, we all know better. But back then it wasn't seen as a risky thing at all.
ARMs were always a most risky thing. Long ago, banks held the mortgages. Therefore bankers shared in the risk and would not make deals that were risky and so stupid. With new financial games (ie mortgage backed securities and CDOs), bankers no longer held risk. They could lie and be believed because once banks were responsible. Once banks did calculate risk and determine who could qualify for loans. No longer. Bankers no longer determined what was and was not a risky loan. He would simply sell that loan to others. And reap rewards by no longer doing what was his job.
Once, mortgages were a safe investment because bankers would never make risky loans. Therefore buying a mortgage backed security was a safe investment – until bankers discovered they could ignore risks.
Everyone forgot to notice what made mortgages safe and stable. Bankers could ignore all risks. Therefore homeowners and naive investors got stuck with all risks. Bankers and Wall Street shysters got rich since that is the only purpose of the Mafia and business school graduates.
ARMs were always risky. Smart people who recommended them were enriching themselves using overt lies. An industry where regulations were removed or bypassed routinely, risky ARMs were sold in the tradition of a ponzi scheme. Bankers ignored risk. After all, the only purpose of their business is to enrich themselves. Providing a service was not relevant.
ARM's were created for specific situations and used properly contained very little risk. none in fact.
If abused, for example: One trying to buy more than one could realistically afford, or applied in the wrong situation they were not risky at all, they were outright stupid.
ARM's were created for specific situations and used properly contained very little risk.
Right. And Saddam had WMDs. We just have not found them yet. Clearly so many homes worth less than their mortgage as those mortgage interest rates increase - absolutely no risk. Clearly interest rates with no limit - absolutely no risk. Clearly you mock me with fictions. Extremism is alive and well in casing blame elsewhere.
Could you not understand what I wrote? Apparently so.
Here is a hint ... Try reading THE WHOLE POST.
ARMs were always a most risky thing. Long ago, banks held the mortgages. Therefore bankers shared in the risk and would not make deals that were risky and so stupid. With new financial games (ie mortgage backed securities and CDOs), bankers no longer held risk. They could lie and be believed because once banks were responsible. Once banks did calculate risk and determine who could qualify for loans. No longer. Bankers no longer determined what was and was not a risky loan. He would simply sell that loan to others. And reap rewards by no longer doing what was his job.
I have to agree with TW on the principal of his statement if not on the actual objection to ARMS. This whole mess that we have gotten ourselves into is because of hyper-capitalism. If I collect a bet from you for a horse, our relationship is not investor and broker, it is gambler and bookie. We are not investing in the horse and directly supplying it's owner with capital. While securitization, hedges, and other methods were useful in spreading risk, they were never intended to be primary investments. In the insurance industry, there is also a concept called reinsurance, where an insurance company sells some of their risk in, say oceanfront Maryland properties and takes on earthquake risk in California. This is so that a single catastrophe could not bring down a company. Hedges and the securitization of mortgages were similar in that they allowed spreading risk or betting 'for' risk. Southwest Airlines famously did this by buying fuel hedges. When the price went up, the profits from the hedges offset rising fuel costs.
Banks, however, took it too far. They oversold, securitized, and re-securitized to the point where no bank kept any appreciable risk from any mortgage. This removed their incentive to apply due diligence. Loan officers and brokers, who have a legal obligation to borrowers and lenders, were either untrained or committed actual fraud when dealing with borrowers. Yes, if borrowers lied and knew they were lying, then they were accomplices. But in these dealings the people brokering the loans were the experts.
ARM's serve a legitimate purpose. Interest-only mortgages, however, and some of the more exotic offshoots, are more like rent than mortgages. I can't believe the IRS allows mortgage deductions for them.
Broker: How much did you make last year?
Borrower: Well, I got paid $45,000, but my aunt died and left me $15,000.
Broker: I see. Income $60,000.
Borrower: But I only got the last $15,000 because my aunt died. What am I going to do next year?
Broker: You have other relatives, don't you?
That wasn't the fault of the ARM was it?
And no one forced people to sign for them... they just WANTED it.
Banks, however, took it too far. They oversold, securitized, and re-securitized to the point where no bank kept any appreciable risk from any mortgage. This removed their incentive to apply due diligence. Loan officers and brokers, who have a legal obligation to borrowers and lenders, were either untrained or committed actual fraud when dealing with borrowers. Yes, if borrowers lied and knew they were lying, then they were accomplices. But in these dealings the people brokering the loans were the experts.
Risk is a concept that international banking standards such as Basel 1 and Basel 2 were designed to address. The US simply refused to accept these standards. And then watered them down to enrich the finance industry at the expense of America and other nation's economies. For example, investment banks including Lehman, Bear Stearns, Morgan Stanley, etc were exempt from Basel standards so that their debt to equity ratios could exceed 30 to 1.
We have finally finished with health care reform. Coming is the next and absolutely necessary regulation of financial industries. The same naysayer will attack it for the same political agenda reasons. Finance industry foolishly claims the purpose of a company is profits. Same philosophy behind the mafia. The product (service to an economy) be damned.
Key is long overdue regulation due to LTCM 12 years ago (hidden risk that could not happen on open markets), Enron accounting (that was made so legal in 2001 as to be called REPO 105 in Lehman Bros), and insurance (AIG wrote thousand page insurance policies to remain exempt from insurance regulations and to hide risks that even top management could not understand).
Overt fraud is so widespread in the American financial economy so that stock brokers (salesmen) routinely reap $250,000 plus (not including bonuses). The senior VP in Merrill Lynch was fired for warning about what would happen years later. Board of Directors in AT&T remained completely uninformed when AT&T was only 3 months from default. Major bankers were told they had eight hours to save the entire American economy. We all learned later that is was that bad.
Coming is the next and necessary fight. To heavily regulate an industry ripe with corruption. With people so grossly overpaid because they actually believe they deserve it. Risk is simply a major part of a massive problem directly traceable to profits reaped without any responsibility for the consequences. ARMs are just a little part of that larger problem.
Essential to risk markets is complete transparency. ARMs are quite risky. And only one example of the larger problem. That battle looms.
That wasn't the fault of the ARM was it?
And no one forced people to sign for them... they just WANTED it.
Once upon a time, bankers determined if you could afford the loan. It was called risk analysis. ARMs were always available. And almost nobody could afford them - once risk analysis was performed.
To corrupt that system for higher profits, responsibility was removed. Home owners told they afford homes because risk analysis was subverted to maximize profits. ARMs never existed (except in extreme exceptions) when the system was doing risk analysis.
Blaming the victim is political spin. Risk analysis was intentionally subverted so that elite financial greed could be rewarded. Once the political spin is stripped away, ARMs were dumped on unsuspecting consumers to only enrich the financial elite. It’s just not that difficult to understand once a political agenda is removed.
Using personal responsibility to excuse corporate crap is exactly WHY they do it. They knew ahead of time they could blame the victims.
Not everyone is a financial analyst. Some just want to try to make it in this stupid material world. Some are gullible and believe the liars. That doesn't negate the evil and the corruption. It just makes those who didn't "fall for it" feel superior.
Now that corporations are people you'd think personal responsibility would cover them as well...
One would think! There must be a loophole.
The loophole is that you can't put a corporation in jail. Back in the 70's or 80's there was a tragic amusement park fire in New Jersey. One of the prosecutors or cops went looking for the person responsible for the fatal criminal negligence. I don't think anyone ever went to jail.
The only way to punish corporate misbehavior is by fines and lawsuits. Fines have not kept up with the profit to be made by breaking laws and Washington is leaning towards 'tort reform'.
If you or I were told we would never go to jail for anything we did and would instead be fined, how would that affect our behavior? And what if the maximum fine were $1000 for any offense? And if lawsuits were also capped at $1000?
I have never heard more bitching than when Sarbanes-Oxley went into effect, making CEO's and CFO's more accountable. The bonus-laden babies immediately began crying about the increase risk to them now that they would actually be held accountable for financial reports.
In fact, there is a lot of criticism that Sarbanes-Oxley is actually pretty weak in enforcement.
Using personal responsibility to excuse corporate crap is exactly WHY they do it. They knew ahead of time they could blame the victims.
Not everyone is a financial analyst. Some just want to try to make it in this stupid material world. Some are gullible and believe the liars. That doesn't negate the evil and the corruption. It just makes those who didn't "fall for it" feel superior.
Its both Shaw - They are both to blame. Neither ignorance nor greed are acceptable excuses.
Blaming the victim is political spin. Risk analysis was intentionally subverted so that elite financial greed could be rewarded. Once the political spin is stripped away, ARMs were dumped on unsuspecting consumers to only enrich the financial elite. It’s just not that difficult to understand once a political agenda is removed.
We are the victims. All. of. us. We are
all paying whether we took out an ARM or not. Those that used them and those that were responsible borrowers - we all pay now. This is not political. It is about responsibility.
It's too bad we are not all as smart as some of us. :lol:
Corporations, hiring the top of the line liars, have a supreme advantage over a person with an IQ of 90 and a job at the supermarket who thinks they can finally send their kid to summer camp.
(pssst, that's why they call it 'predatory.' It's the powerful preying on the weak. We hope the weak learn and grow stronger. In this case, strength, survival, means avoiding the predator. They didn't see the herd being thinned until they were already in the thick of predatory territory. Are you completely without compassion for those who are not as savvy as you? The dummies and the corps are NOT equally responsible, by a long shot.)
Ok, so its those evil corps again that are all to blame. Personal &/or fiscal responsibility have little to do with it.
We'll have to agree to disagree here as we both bail out the bad choices made by other people. Personally, I'm getting used to it.
(pssst, that's why they call it 'predatory.' It's the powerful preying on the weak. We hope the weak learn and grow stronger.
The weak should be required to learn this shit in school. It's important.
I agree. These circumstances should bring about education. The giant finger-wagging accomplishes nothing.
Ok, so its those evil corps again that are all to blame. Personal &/or fiscal responsibility have little to do with it.
We'll have to agree to disagree here as we both bail out the bad choices made by other people. Personally, I'm getting used to it.
You're such a republican. ;)
For all the reasons I've laid out, if one were to read my posts as an actual
conversation, yes...the evil corps are very responsible. We don't live in a world where everyone is savvy. The corps, they are the savviest. Wow, this seems like common knowledge to me.
If you, again, read my posts as a
conversation you will see I have not completely taken personal responsibility of individuals away...I'm saying the game was far from fair. This is not opinion: this is our world. Perhaps we should expect everyone to be as smart as some of us. *shrugs* It's not going to happen.
If you find that world, please let me know. I've been forced to live in this one and it's the suxxors. For reasons I find odd and foreign, greed seems to be in charge. I find it disheartening that we excuse such monumental greed and outright thievery by telling the weak they were just stupid to fall for it. There there, big corps, you're just being yourselves. The rest can have cake.
Anyone that spends hundreds of thousands of dollars, without finding out the facts, is asking to get screwed. The information is available for free, and if you still can't understand it, hire an accountant or lawyer that can.
If you, again, read my posts as a conversation
But yet your are the first to PUNISH anyone who types or posts as if someone is in
conversation. Get use to eating cake. The nightmare has just begun.
But yet your are the first to PUNISH anyone who types or posts as if someone is in conversation. Get use to eating cake. The nightmare has just begun.
No, mer not the first one to PUNISH anyone who posts or types as if someone is in
conversation. Are you high again? Better get use to being wrong. You nightmare has just begun.
Why'd you come back, to remind us all what a dickhole you are? :lol:
Once upon a time, bankers determined if you could afford the loan. It was called risk analysis.
.....
To corrupt that system for higher profits, responsibility was removed. Home owners told they afford homes because risk analysis was subverted to maximize profits.
I've mentioned this on the Cellar before, but when we got pre-approval for a loan so we could go house shopping for our current home, the bank tried to convince us that we would be fine borrowing about 1.5 times more than what we thought we could afford. They thought we should be buying more house. We had to be the ones telling the bank we didn't want to borrow that much. But even then, they pushed us. Less than a year after the deal closed, they sold our mortgage to another company. I doubt they ever intended to keep it.
It would have been so easy to just listen to the bank and take the huge mortgage and buy the mansion. But we'd be in trouble now.
A con game relies on the target being greedy, ignorant, and/or dishonest. So most people who are conned are, to some extent, to blame.
That doesn't excuse the con.
I agree HM, except to the reference of the con-game. WAY back there somewhere I mentioned that.
re: glatt - It is extremely rare for any salesperson to not try and upsell the customer. I see it daily. Is there a line between what is best for the client and what is best for the salesperson or their company? Yes, obviously. Most look at it long-term and sell appropriately. Others look for the quick buck and lose lots of customers. This is true in virtually all sales regardless of the product.
... Others look for the quick buck and lose lots of customers. This is true in virtually all sales regardless of the product.
At least in our culture.
It is extremely rare for any salesperson to not try and upsell the customer. I see it daily. Is there a line between what is best for the client and what is best for the salesperson or their company? Yes, obviously. Most look at it long-term and sell appropriately. Others look for the quick buck and lose lots of customers. This is true in virtually all sales regardless of the product.
All very true, and pretty obvious when you stop to think about it, but when we went to the bank looking for a loan, it didn't occur to us that we were going to talk to a sales person. Having never taken out a loan before, I thought that it was all serious business where the bank is this stogy old place that wants to protect its money and we would need to beg for the money from old Mr. Potter.
I can't imagine where you got that impression. How many ads were on at that time in every single format stating just the opposite?
All very true, and pretty obvious when you stop to think about it, but when we went to the bank looking for a loan, it didn't occur to us that we were going to talk to a sales person. Having never taken out a loan before, I thought that it was all serious business where the bank is this stogy old place that wants to protect its money and we would need to beg for the money from old Mr. Potter.
The more I read about it the more I realize there is enough blame to go around at every point in the loan process. But it still pisses me off that we are bailing out the guy down the street who took a chance and tried to flip a $750,000 house, knowing all and well that he could never afforded it for any length of time. That is the guy that gets off his responsibility and we get to pay up the difference for. The system is broken. And by that I mean the whole bail out system. Some of these people just need to move to an apartment for the rest of their lives and get use to the fact that their credit is screwed for the next 15 years.
A con game relies on the target being greedy, ignorant, and/or dishonest. So most people who are conned are, to some extent, to blame.
There was also a (probably small) group of people trying to con the lenders, trying to borrow more than they knew they could handle, looking to make a quick buck on the bubble. They were also dishonest.
re: glatt - It is extremely rare for any salesperson to not try and upsell the customer.
Once upon a time, the bank got stuck equally if they provided a mortgage the consumer could not afford. The salesmen, once upon a time, also was at risk. In the past decade, a bank no longer had to be responsible. The bank no longer had to consider risk. Lack of regulation enforcement only encouraged that new attitude. Consumers had no idea that the bank was no longer operating responsibly.
That is the only thing that changed.
Now a solution. Difficult is to separate the rare speculator (who was flipping a $750K house) from others who were sold an ‘excessive risk’ mortgage. Many homeowners owe more on a house than the house is worth. And many banks are simply not foreclosing due to no better option. Other banks have massive profits because they sold off bad loans using money games or simply do not foreclose – do not yet admit to the losses. Too many foreclosures would mean admitting that reality on spread sheets. Many banks just cannot afford to do that.
How does someone refinance when a loan is for more than the house is worth? We still do not have an answer other than bankruptcy. Instead, money lenders are hoping that with time this problem will go away. Some programs have been introduced that only chip away at the problem.
Anybody have a better solution?
One thing that doesn't seem to be taken into account by a lot of people is the element of 'trust'. Bankers used to be people who could be trusted not to loan to someone who couldn't afford the loan. It went against their interests as a lender to lend to someone who may end up defaulting.
I don't know what it's like over there, but over here a bank manager was held in high esteem; very much a respected pillar of the community. When someone wanted a loan, or a mortgage they would go to the bank, and the bank manager would carefully assess their finances and refuse loans and mortgages to those who couldn't afford them. They were the experts. Like doctors.
Since the 80s there's been a shift in the role of banks and lending; and whilst we all know that, the cultural baggage of the previous era left an aura of respectablity and trustworthiness around the people orchestrating new lending practices. If you don't know much about finances and money, then trusting the trustworthy expert may seem a good idea.
If I'd been in a position to buy a property a few years ago, I would have gone and spoken to someone at my bank, and would no doubt have placed a higher level of trust in their advice than I might today.
I'm not a stupid person. But I don't understand money and financial matters. I don't understand it when someone explains it. I could have gone off and read all about mortgages and I still wouldn't understand it. I wuold have had to rely on financial experts, and in my world view they were generally to be found at banks: they were the ones from whom I was used to hearing the word 'no'.
The aura of respectability sprread out to encompass anyone who could lay claim to being a 'financial expert'. Mortgage shops sold the dream of home ownership to people who should have continued to rent. Our government sold home ownership as a concept; like it was the mark of a civilised society, and anyone not on the ladder by the age of 25 was clearly a social and cultural failure. At the same time, this mania for property forced prices up and out of reach of most people under the age of 35.
Alongside this was a barrage, first through the 90s, of Home Improvement shows; then by the turn of the millenium this shifted to Home Buying shows. The cultural message has been rammed down people's throats for a decade or more that houses are a disposable and fluid asset to be flipped more times than a pancake. The allure of the quick money wasn't just down to people's greed and stupidity; it was fostered by their governments and their banking institutions. The people they were still culturally, at a very deep level, inclined to trust on questions of finance. If an entire culture is pushing an activity as normal and desirable, then obviously some people will be swept up in that, who might otherwise act quite differently. Propoganda works.
Shaw has it right. The predators bear most responsibility. And they knew and know damn well, that the responsibility and consequences of their predatory behaviour will be placed firmly at the feet of their victims; hapless or otherwise.
Damn Dana, that's an excellent post.
I agreed with you right up to the end where you said Shaw was right ;)
The predators bear most responsibility.
I disagree. The predator might be morally wrong, but the responsibility lies with the one who will suffer the consequences, and I'm not just talking about mortgages here but pretty much life decisions across the board.
Seriously though, how hard is it to know how much of a mortgage payment you can afford? How much are you paying in rent? Add in any additional expenses not covered by your rent (taxes, hoa fees, trash, whatever) - there's no magic to it. If you don't know for sure you'll be making more money in 5 years, then Mr. Banker sure as hell can't know that either. I don't get it...
The bankers/brokers were telling people they could buy with an ARM, then switch to a conventional mortgage when they wanted to. That was a lie that buried a lot of people, when interest rates soared.
Just because your house is worth less than you paid for it doesn't mean you are in danger of foreclosure... hell, most things you own are worth less than you paid.
The people in trouble are the ones that either lost their income, or had mortgage payments increase more than they could afford.
But I don't understand money and financial matters. I don't understand it when someone explains it. I could have gone off and read all about mortgages and I still wouldn't understand it.
Bullshit, I'm sure you could if you put the time and effort into it. You haven't been in the position to spend hundreds of thousands of dollars (pounds), so you haven't taken more than a cursory glance at how it works.
Sure, it's easier to go to the banker whom you trust, which was your point, by I'm saying you could understand it, if you had a mind to.
I recently had occasion to seek financial advice (from my usual bank as it happens :P) as to what savings accounts or fixed rate bonds might be appropriate for the money Dad left me. I also read up a little online. My head was spinning with it. I have a real problem with maths; just no head for it at all. Start talking about interest levels and stuff and it's like a little switch goes off in my head.
The bankers/brokers were telling people they could buy with an ARM, then switch to a conventional mortgage when they wanted to. That was a lie that buried a lot of people, when interest rates soared.
I take exception to the characterization of bad advice as a 'lie'.
My father was an investment banker. Had 20+ years' experience in the banking system, had passed all the SEC exams, was an Exec. VP of a major US bank. Knew the system inside and out. And, if it's relevant, he had a hellaciously high IQ.
He never saw this bubble coming. He recommended we get a 5/1 ARM; he was
absolutely certain that we would be able to re-fi at favorable rates. You can't argue he had an interest in screwing me (his daughter) over -- he helped us with our down payment!
Of course, we were lucky. We did re-fi in 2007, a year before the collapse. And we never had a bad debt-to-income ration (I believe our back-end ratio was never over 18.)
His advice wasn't a lie. It was short-sightedness, optimism, and a willingness to suspend belief in the primacy of gravity.
There are two classes of borrowers in trouble here:
[LIST=1]
[*]Those who took on crazy levels of debt, using exotic instruments to purchase things they never had a prayer of paying for;
[*]Those who bought properties
with otherwise acceptable DTIs, perhaps using standard mortgages, perhaps slightly 'interesting' mortgages... who have since lost their jobs.
[/LIST]
I know who I sympathize with, and who I would choose to 'bail out'. Of course, drawing the exact line is always difficult.
His advice wasn't a lie. It was short-sightedness, optimism, and a willingness to suspend belief in the primacy of gravity.
It was a lie, just not personal. He didn't know it was a lie, because it was institutionalized. Bankers may not have seen the bubble was going to burst in such a catastrophic way, after all it was underwritten by institutions too big to fail, but they had to see it couldn't continue the way it had.
I disagree. The predator might be morally wrong, but the responsibility lies with the one who will suffer the consequences, and I'm not just talking about mortgages here but pretty much life decisions across the board.
Seriously though, how hard is it to know how much of a mortgage payment you can afford? How much are you paying in rent? Add in any additional expenses not covered by your rent (taxes, hoa fees, trash, whatever) - there's no magic to it. If you don't know for sure you'll be making more money in 5 years, then Mr. Banker sure as hell can't know that either. I don't get it...
Jinx, I think that considering your level of education and your husband being a finance manager you are probably more aware of money and how it works, but imagine you were undertaking some other endeavor in an area you were not as conversant in. You may decide to trust the credentials of "the expert" you had engaged to perform that service. Perhaps law? It wouldn't be possible for you to educate yourself to the extent that the professional you hired is educated. Perhaps building? Again, you could read and study about your project, but that still isn't the same thing as being a builder for 20 years.
Now, chip away about four years of your schooling and a dozen or so IQ points and maybe even a little emotional maturity and you are among the ranks of the prey.
Of course it is still their fault, but poor parenting, and a culture of mindless, thoughtless consumerism certainly contributes to the problem.
Don't forget that who you know is as/even more important that what you know. I guess that's why people 'network'.
It was a lie, just not personal. He didn't know it was a lie, because it was institutionalized.
Entry: lie
Function: verb
Inflected Form(s): lied; ly·ing \ˈlī-iŋ\
Etymology: Middle English, from Old English lēogan; akin to Old High German liogan to lie, Old Church Slavic lŭgati
Date: before 12th century
intransitive verb 1 : to make an untrue statement [COLOR=Red]with intent to deceive[/COLOR]
Emphasis is mine.
You are wrong. My father was not a liar.
So Bush never really lied.
I don't think Bush actually had 'intent to confuse' either, but he did. ;)
:D
Bush was a sock puppet.
You are wrong. My father was not a liar.
I didn't say he was, as a matter of fact I carefully avoided that. This is not about your father, it's about an entire industry run amok. They were selling a lie.
Oxford; noun2 - a situation involving deception or founded on a mistaken impression.
American Heritage: Noun2 - false appearance: a situation based on deception or a false impression
Webster: noun2 - anything that gives or is meant to give a false impression
So Bush never really lied.
:D
Bush was a sock puppet.
Fuck off you idiot. Don't try to redirect the subject. This is not a discussion of the tit suckers...
:D