Before we take the entire banking industry to task on the foreclosure mess, it bears reminding that the source of the problem is people who bought homes they couldn't afford. Let's blame them, too.
As even Shakespeare might have told us, when caught in a jam, blame your lender. No one loves a Shylock, and they're pretty much the easiest target going in these financially troubled times. But have we really come to that -- a default position that it's always the lenders' fault? Apparently so, and we should be ashamed of ourselves.
Allow me to get a few things out of the way before I receive the anticipated full-throated responses to my suggestion that the blame-avoidance culture in this country has finally jumped the proverbial shark.
One: I am not a righteous fiscal (or social) conservative, spouting self-reliance. People make mistakes and they also experience sudden turns of fortune. But I find it very hard to process the notion that the onslaught of foreclosures in this country does not have more to do with a failure of conservative financial planning than with some insidious criminality by lenders. My wife has wanted a bigger house for years, but we have chosen not to buy one. Why? Because we couldn't afford it.
Two: Like most rational folk, I take issue with outright fraud. If laws were broken, send the crooks to jail. That said, I'm amazed that the country has congealed into the belief that every single borrower who signed a mortgage document has an escape hatch that somehow puts blame on their lender when they can't pay their debts. While I am much more inclined to believe that buyers of so-called securitized debt instruments might have been defrauded by their packagers, I am at a loss to understand how so many individual homeowners signing loan documents for debt they could ultimately not afford were somehow the victims of a crime. We used to say that there was no free lunch. Now, we're demanding a refund when we didn't even pay for it in the first place.
Three: I wrote a book about Jamie Dimon called Last Man Standing. In it, I praise him for a sense of ethics often found lacking in financial services CEOs. And yet this week, JPMorgan Chase (JPM) is taking the brunt of a populist firestorm that is shocked – shocked! – that the processing of millions of foreclosure documents may have taken on somewhat of a robotic quality. Again, I take no issue with the requirement that we all follow the law, and if JPMorgan Chase or others broke it, then they should pay the appropriate price. But the law also holds that people who default on their loans must forfeit the property pledged as security. It's as simple as that, and Dimon agrees. "We're not evicting people who deserve to stay in their house," he told shareholders on Wednesday.
Blaming others for our excesses
Back to our main point, though: in this remarkably blameless moment in American history — it's not my fault, it's not yours, it's not anybody's but some corporate bogeyman's — have we not lost the forest for the trees? It's okay that people made the mistake of borrowing more than they could afford. But is it really the lenders' fault? Really? Maybe the banks didn't deserve to be bailed out for their own poor judgment, but do the rest of us really deserve to bailed out for our own?
Forget about the oft-mentioned fact that we're in the midst of destroying our long-held beliefs in the notion of property rights and contract law. Does anyone realize what a bunch of babies we must look like to the rest of the world? As Bethany McLean and Joe Nocera point out in their new book, All The Devils Are Here, there's more than enough blame to go around, and the American public is well past due the time for accepting its own share.
Should we be concerned that a foreclosure freeze will delay the recovery of the housing market, as Dimon recently said? I feel that's missing a different forest for a different set of trees. President Obama may have disappointed a lot of people in a lot of different ways, but the idea that he – or any president – could instantly heal the wounds from a generation of excess in this country is absurd. These things take time, people. Throw the scoundrels out of office if you want, but their replacements won't be able to speed up the cleansing.
In the past, I was always amazed whenever I visited people in London or France at how small their dwarf-like refrigerators were. How do you keep all the food you need, I used to ask them? Now I realize that the fact that I was recently compelled to buy a freestanding freezer for my basement is just a fitting symbol of our need to have more, more, more. Maybe we don't need restaurant-sized fridges in our own homes. Or, for that matter, 4,000 square-foot homes in which to put those fridges.
Bring on the vitriol, because I know it's coming. But for God's sake, people, buck up. China won't lend to us forever, and when they turn off the tap, we're really going to feel what it's like to face up to our own spendthrift ways.
See also:
Foreclosure fears butcher banks
Alabama ends foreclosure holdout
Dimon downplays foreclosure mess
to Jim below, the owner of R/E Co in Palm City, FL...I might be able to explain to the nice couple why they are to blame...b/c sadly they paid you TOO MUCH for the house. If doubtful, just see comment from buyer of 762 sf Los Angeles, CA $530K home...an OVERPAID housing market that has priced out younger buyers can be blamed on us all - the banker for miscalculating and the buyer for the excess. No amount of govn´t spending of public funds can change that fact w/o socializing the loan writedowns and so the loss s/b shared by borrowers and lenders alone.
OH, yea,let's blame those buyers that purchased homes just like all the banks, real estate brokers, and appraisers enticed them to do. The buyers basically bought into the American consumer society. Sure, some had no business doing so. But, it wasn't until the housing crisis blew up that the fingers began to be pointed.
All the while the financial wizards who collateralized loans, created toxic assets, and got taxpayer bailouts have continued to laugh as their assets and wealth grew at a phenomenal pace.
So, get serious. The blame, and there is a lot to go around, first and foremost should fall on the bankers and the motley lot of parasites who road on their coat tails. The middle class is being decimated while the wealthy keep on trucking.
Bankruptcy laws have tightened the screwa on the ordinary folks. Foreclosures have ruined many lives. To hell with the banks. No one blinks an eye when corporations like Blockbuster go bankrupt and the CEOs and officers move on to screw another set of debtors. But, it is considered ok to blame homeowners. Nonsense.
Those who blame the homeowners are shameful apologists for the parasites in the banking world.
Robert Zweben Albany, Calif.
Does anyone think that when you go to buy a car they are looking out for your best interest? Or when you buy a plasma TV? When you go to people you don't know for a transaction such as a mortgage, there should be no expectation that they are looking out for your interests! Anyone in the banking industry who abused or broke the rules should be punished, but that doesn't forgive individual responsibility for basic budgeting and accountability. There are an enormous number of stories of people who are truly victims and they should be helped through these times as much as possible.
Large banks and mortgage brokers who don't have anything at stake if your loan goes bad have no interest in your best interest. If you are really looking for guidance or reassurance work with someone you know or your community bank - just don't give them grief about a slightly higher rate. It costs something for those relationships.
The people I hear complaining the most about the housing bust were the same people who for years were taking out loans on multiple houses so they could fix them and flip them for a huge profit. Then when the bottom fell out they got caught holding the bag. It's like musical chairs, sooner or later your going to be the one caught standing. The one point I don't agree with is that why is it the ultra wealthy and the banks who always end up in the chair. This article doesn't put enough emphasis on the fact that banks ( traditionally conservative institutions) got greedy and made too many ill advised loans. But his point that as a society we all reached a little too far in the cookie jar is a good one.
As a Realtor, and Real Estate Investor since the late 70's I can say that unfortunately, though people are told to buy low and sell high, the vast majority buy high and sell low. Whether it is stocks, real estate or whatever the same happens over and over, once prices start going up quickly everyone wants in. When prices are low and they should be buying they sit on the sideline until the next big rise in prices.
The housing mess started with the government pushing affordable housing and Andrew Cuomo when he was head of HUD, pushing Fannie, Freddie and the lenders to take more risk. Lenders ended up being willing participants, but just watch people such as Barney Frank, Alan Greenspan, Ben Bernancke and virtually every economist of the time and they were all saying housing prices would never decline.
Many buyers I ran into however were caught up in the frenzy. No matter how much we told them they were paying too much, even paying extra cash as the appraisal came in too low, they felt that they could buy now, put their payments on their credit cards and sell in six months and make $50K to $100K, or buy at pre-construction prices to close with the builder in the morning and then with another buyer in the afternoon at a huge profit.
Even in late 2005 and into 2006 when the trendlines were showing inventory going up, sales and pendings were declining, prices still kept going up. Many of us wondered how long that could continue. Although I expected a decline in prices, I must say, I never imagined that they would decline 50% or 60%.
We need to let the market hit the true bottom and that can only be done by allowing these homes to go to foreclosure which will let the market take care of itself.
I don't think the lenders have been blamed enough, frankly. If you made a loan to someone whose ability to repay is shaky, you were stupid to lend the money. Period.
If you are in the industry of managing money, KNEW your company was making shaky loans by the thousands, and continued to make those loans, you are a special kind of stupid.
The difference between lenders and borrowers is that lending companies are supposed to have analysts and forecasters and people with expensive degrees whose job it is to know when a loan is a bad idea for the institution. So what happened?
1.I could afford my payment when I financed my home. 2.Banks have a long history of screwing people. They are just getting caught again. 3. Corporate greed is the only reason our economy is in this mess. Thanks to the Bush administration for encouraging it.
The banks were drug dealers, the mortgagees drug addicts. We don't let the dealers off the hook just because the addict made the decision to get high.
Bob Orwigsburg : "Excellent ! Mr. McDonald is too much the gentleman in not 'naming names' of those 'social engineers' in Congress (Dodd, Frank, etc.) who pressured lending institutions to engage in this fool-hardy practice."
Bob, you seem to forget who controlled Congress when these loans were made (mid 1990's - 2006) : Republicans. Their dear leader summed it up best :
"We're creating... an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property." - President George W. Bush, October 2004
Tim : "Non of the loans would have been made if there wouldn't have been an entity to buy them that was supported by the tax paying public. Who was that you ask? Fannie Mae and Freddie Mac. Who allowed them to do it? The good old Democratically controlled Congress of the U.S. of A. Our Government."
Except the Congress wasn't controlled by Democrats, but Republicans during the time the vast majority of sub-prime mortgages were made. The problem started in the mid 1990's, and grew through 2006. The Republicans took control of Congress in 1995, and held it until 2007.
You make a very cogent argument AGAINST the Republicans. Not only do they cause the problems, they also lie about it and blame everyone except themselves for the problems they created.
Republican : n. A problem masquerading as a solution.
Here, have a dose of vitriol: As a letter carrier, I see the effects this mess has on patrons firsthand. It also has an effect upon us, as we try to determine who still lives where and who has disappeared. Now, as to the banks, I agree, to an extent, that consumers were woefully undereducated in accepting whatever mortgage agreements might have been offered to them.I can also imagine these agreements written up in wonderful legalese; most potential homeowners probably did not have access to a lawyer to have their documents explained in detail.Add to this a sense of urgency by banks to close the deal "before rates climb". Add also the urgency to close the deal before a seller decides to withdraw the offer, or accepts a higher one. This is called high pressure salesmanship, and it is one of the most insidious problems that affected real estate a few years back. Many home buyers were speculators looking to either flip properties or pass on any mortgage costs to their tenants (those who rented out). Once a mania begins, I agree it is up to an individual to assess the situation. I also feel, though, that a possession as important as a home can not be dismissed merely as out of reach; some simply felt that there would never be a cheaper time to own property. Had a homebuyer waited in 1974, he or she might never have afforded the property by today.
I couldn't agree with you more. For years I have watched people buy huge, expensive homes that they surely could not afford on their salaries. My wife and I have been able to afford a larger home, but have opted to purchase reasonably sized homes that were under our budget. Possibly the banks and some Americans were greedy?
This article is right on. The bankers do have some of the responsibility for this mess for letting everyone use programs that were designed for the few and lax underwriting on the programs that were designed for everyone. BUT nobody, and I mean NO ONE, held a gun to anyone's head while they were at the closing table and forced them to sign the loan documents on homes they had no hope of ever being able to afford long term. The public is overwhelmingly the biggest cause of this mess. Some say they didn't understand what they were signing. Then why didn't they ask for an explanation so they did understand. And if the first answer didn't do the trick, keep asking till it does. Being ignorant of the loan terms is not an excuse. Others say the bank shouldn't have let them buy a home that their income couldn't support by letting them use a no doc loan and lie about their income. Having worked as a loan officer for over 15 years, never once did I ever seen a directive from any of the banks I originated for tell me to force potential borrowers to use a no doc loan and lie about the income so they could buy a house they could not afford. It was the borrowers choice whether or not to use the loan program that was used to purchase their home. If they could only qualify for the home using a no doc loan, or any of the many other non-traditional programs, it was the borrowers who elected to proceed, not the bank. Again, no one held a gun to their head and forced them to buy the house. The public needs to grow a set and accept the fact that THEY are the primary reason we are in this mess.
The fact that the banking industry is taking heat for fraud, sloppy record keeping, loose underwriting standards, excessive bonus based on inflating property values along with various yet to be determined legal issues needs to get public attention from the main stream media but in your case that's more then the banking industry should bear so we should shift our anger at our neighbors who lost jobs or bought more home then they could afford or are returning the homes to their lender per mortgage contract laws.
This article is out of its mind...nobody was complaining when the goverment,bank, mortgage brokers and so on..were blasting and promoting no income verification loans...and saying buy buy buy into real estate as prices will appreciate!!! Not only that but loan officers and executives forged docs to get consumers approved...most consumers signed mortgage docs, not knowing exactly what they are signing...its the financial institutions duty to tell a customer, that with his income he or she can not afford that type of house...If I tell you I am making 30k and you give me a 400k loan...is this my fault or yours?
To be clear - the lenders and investment bankers deliberately mislead the borrowers who took out the mortgages and they deliberately mislead the investors they sold them to. This was industrial scale fraud.
What garbage. When I applied for loans the bank was very very interested if I could pay. Clearly Citiwide could care less. They were going to pawn them off on some poor sucker. Most people buy at most few houses in thier life and expext the bank to tell them what they realisticly should buy. Just a fine? Why are not a whole bunch of those wall Streeters in jail. Time to move on? No Way!
"t bears reminding that the source of the problem is people who bought homes they couldn't afford."
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