Well, in normal situations, the argument would be risky borrowers get charged a higher interest because of the risk involved for the banks, but here, clearly the mortgage brokers were engaged in predatory practices, and screwed both the low-income borrowers and the banks. Many of the subprime borrowers are defaulting, and the banks are (deservedly) left holding the bag.

Well, in normal situations, the argument would be risky borrowers get charged a higher interest because of the risk involved for the lender, but clearly, the mortgage brokers were using predatory practices here. They screwed both the low-income borrowers and the banks - many of the subprime loans are defaulting, and the banks are left (deservedly) holding the bag.

I don't like your characterization of those low-income buyers you consider to be culpable for their own misfortune, those knowing takers of foolish risks.

I think extremely few recipients of subprime loans, even though they may be taking risks that you--Mr. Rich Guy, Mr. Moneybags, Mr. Flawlessly Prescient and Well-Educated--would never take, deserve much blame, and are simply people who want to be able to buy a house and thought they had, for once, this opportunity.

They wanted a chance to buy a house, and you sneer and spit on that. I guess you should become a right-wing Republican sitting on the federal bench. Why sympathize with the poor when you can label their choices "foolish risk-taking."

Bad choices and grabbing at what opportunities come along may be foolish in hindsight, but your labels, your characterizations, your word choices, reveal that you just don't have a clue what it is to feel need or want, cosseted in your cosy middle-class bower.

Time to get rid of student loans for the poor. A lot of them will end up with loans they'll never be able to pay off. Better deny them the opportunity to bury themselves in debt. Save them from their greed, greed, greed. Don't they know that that's above their station in life? Flophouses and beautician's school are good enough for THEM.

I'm glad that recommendation number 1 is to get rid of yield-spread premiums. They are the scourge of the mortgage industry, skimming tens of billions of dollars out of homeowner pockets every year.

The mortgage broker lobby is too powerful to ever get rid of YSPs, but a concerted effort might at least get some clearer disclosure. We need some RESPA reform!

Screwing the poor is big business these days. Pay day loans, check cashing and rent-to-own are growth
industries in poor neighborhoods. The poor have limited choices and there are plenty of people waiting to take advantage of them.

The essence of American capitalism - Privatize the gains and socialize the losses.

It was my impression that a lot of the paperwork for the sub-prime and Alt-A loans was either incomplete or wrong (or both). I wonder if an apples to apples comparison is really possible.

Back in 1985 when I got my mortgage through a mortgage broker I was told by the broker what to put down on the application. The bank got my tax returns and other statements so that they could check my credit, but the broker was mostly interested in getting her commission. As it turned out, I was unable to get a 30 year fixed rate. My wife had declared bankruptcy before we got married and even though she wasn't working, I had to accept an adjustable rate. It started at 14%. Part of the Reagan golden age.

Anon: You're lumping student loans in with buying a house? That's absurd. A lot of people need student loans to afford college; nobody NEEDS a house. People need housing, but they don't NEED home ownership.

Are a lot of the mortgage brokers scum? Absolutely. Should they be regulated more heavily? No doubt. In fact, the whole subprime commercial landscape needs a good scrubbing.

But this isn't an either/or situation. Just because there are vultures out there willing to get you in over your head doesn't mean you have to jump in. Whatever happened to living within your means, reading a contract for the biggest purchase you'll ever make before you sign it, and so on? My parents bought their first house when they were forty; our family of five lived in apartments until then, and didn't feel "deprived." My husband and I also waited until we were on solid financial ground, with a good down payment, to buy a house in 2002.

When we went shopping for mortgage approvals, every bank and mortgage broker we talked approved us for approximately three times as much as we were asking for -- hoping to rope us into a humongous mortgage. We didn't bite. Neither did a lot of other people. It's called being responsible.

Kevin's sentence, "But if you were a poor borrower getting a subprime loan — precisely the most vulnerable type of borrower," should end with the phrase, then don't buy a house. When did owning a house become a right instead of a responsibility?

I had a very good broker who a few years ago helped me get a zero-down 30 year fixed mortgage at 5.325%. And put that deal together in about a week- under time pressure from the owner I was buying from- after a previous even more favorable one fell through. Let's not lump good and bad mortgage brokers together.

Makes usury sound quaint...

eparker said:

"reading a contract for the biggest purchase you'll ever make before you sign it"

Those contracts are not easy to understand. I have a college engineering degree, and I had to read my contract several times to figure out what they were saying. All the important stuff is mixed in with unimportant stuff.

Most people who qualify for subprime mortgages can't understand the contract, and depend on the mortgage broker to do that.

DR: They depend on the person who is trying to get them to sign the contract to explain it to them?!?

That is not just irresponsible; it's borderline insane.

We didn't understand our contract either; I assume most potential homebuyers don't. So we hired a lawyer to read it before we signed it; this cost us $250. And anyone who can't afford $250 up front shouldn't be buying a house.

Time is money. It seems to me that if you as the borrower are going to demand more service, time, and expertise from the broker, you should be paying more than someone whose application is easy and straightforward.

Hey, buyer beware. What's the problem? If I can get rich screwing some stupid loser, all the better for me. You have something against capitalism? I say we should take all the poor and homeless and convert them into bio-fuels for my car.

(NOTE: for the humor-impaired, the above was SATIRE)

Screwing the poor is big business these days. Pay day loans, check cashing and rent-to-own are growth industries...

Right up there with casino construction.

Lots of unethical brokers, sure, but they don't set the rules, the lenders do. I was getting daily solicitations from lenders begging me to give them junk, each racing the other to the bottom to make mortgage fraud safe, easy and convenient.

If a bank put a paper bag of cash on their front step overnight, would you say its theft was ONLY the fault of the people who took it? The lenders knew what they were doing, the lenders knew what was happening, the lenders were the ones that created the situation they are now blaming the brokers for taking advantage of.

eparker,

I know I'm becoming a shill for the book "The Authoritarians" but so be it. You can tut tut all you want about the "borderline insane" in our society but that won't make them go away.

Obviously you received a good education from your parents about being skeptical and questioning what an authority figure tells you. I applaud that. So did I.

But there is a big group (probably about 25% or so) of Americans who did NOT get that education and who instead were taught to blindly trust what someone from their in-group tells them and to ignore and be hostile to the rest.

This makes them easy targets for dishonest people who want to fleece them. One could say that as long as this only hurts them, well, too bad suckers! That is cruel but it has some merit. The problem for the rest of us is that, obviously in this case, it didn't just hurt them. Yeah it hurts them, but the rest of us have to bail out the big banks who took advantage of this because we can't risk ruining our entire financial system.

Put bluntly even heartless selfish Libertarians can see that this mess hurts them too. Why is it fair that Broker McCommission can scam big bucks and the rest of us pay the price?

Personally I think our public schools should add a section to the Health class teaching basic skepticism of authority. What do you think the authoritarian parents will think about that? I think they'd like that even less than public sex ed.

Most of you Kevin included are usually well informed and make comments that are quite relavant. Your insights are unusully keen for the most part with the notable exceptions of some of our society's less then perceptive members.

In this case most of you haven't the least little clue what your talking about.
First making a comparison between a subprime loans offered by a broker and a retail outlet is laughable and absurd. Up until recently the banks didn't offer much in the way of subptime loans. They only got into the game when they became aware of how much money they could make.

I could go on and on but only a couple of points are needed here. Brokers are or were not in business to get the best deal for borrowers. They wewre in business to make as much money as possible. This does not excuse shady or illegal practices but it doesn't make them villains.

My last point, even though there are many on this subject that would be useful for people to know, is that these subprime mortgages have been around for a long time and only recently did this meltdown happen.Why? Underlying weakness in the economy as a whole and blatant incompetance by the bush criminal gang in handling and regulating the economy.

Brokers are salesmen. They are paid their commission by the lenders. Most of the lenders turned themselves into commissioned salesmen, too, as they found ways to package these loans and get them off the books -- ways that violated the spirit of lending regulations if not the specific rules. We need to expect them to act like salesmen: in it for the thrill of the commission and nothing else.

I have to agree with those who note that many of the people who borrowed when they should not have had no idea what they were doing and they had no idea who to turn to. Most people in that position have little idea what lawyers do and wouldn't know how to find one who they would trust. There's a reason that there are so many scummy businesses in poor neighborhoods.

Conservatroll: (NOTE: for the humor-impaired, the above was SATIRE)

Anyone who can't tell that a posting from someone called "Conservatroll" is satire...

Sadly, we know that they're out there.

The problem is that many people view a mortgage broker as a person that can help them to get the best deal possible when the fact of the matter is that the broker is there to get the biggest commission possible.

Getting rid of the yield spread premium (and all other "steering" mechanisms) is a good start, but the establishment of a fiduciary relationship between the broker and the borrower would go a long way towards having the law reflect what many borrowers already believe - that the broker has the borrower's best interests in mind.

Tripp: It seems to me that you are infantilizing the poor, acting as if they should be exempt from responsibility for their own behavior. Talk about the soft bigotry of low expectations.

Grown-ups are responsible for the decisions they make. In the recent housing bubble, many people stupid, irresponsible decisions based on wishful thinking and a willful disregard of basic facts, such as how much they could afford to spend each month. People KNOW how much they can afford to spend. And it doesn't take a college education, or any education, for that matter, to know that you know better than a mortgage broker you met ten minutes ago how much money you can lay out each month.

This recklessness infected not only people who never should have bought houses in the first place because their incomes were inadequate, but middle- and upper-middle-income people who bought way more house than they could reasonably afford, based on the completely ridiculous notion that their houses would serve as permanent ATMs, appreciating in the double digits every year.

A lot of people in a lot of financial brackets made very irresponsible, and yes, stupid decisions in the recent housing mania. Often they were aided and abetted by sleazy mortgage brokers and bankers, who should be much more strenuously regulated, and, in the cases of those who committed fraud, prosecuted. But that does not change the fact that the people who took out these loans also must be held responsible for their decisions.

Screwing the poor is big business these days. Pay day loans, check cashing and rent-to-own are growth industries in poor neighborhoods.

Don't forget scratch off lottery tickets. You can add States to that list as well as businesses.

What's this, from the Department of Obvious Studies?

What's this, from the Department of Obvious Studies?

The problem is that many people view a mortgage broker as a person that can help them to get the best deal possible when the fact of the matter is that the broker is there to get the biggest commission possible.

Exactly. There was a study I saw recently that said that a fair number of people with sub-prime loans were actually qualified for traditional mortgages, but the sub-primes were so much more profitable for the mortgage brokers that they steered all of their customers into those.

And that's leaving aside the outright fraud, like the mortgage company here in Southern California that was caught forging documents. Several people actually lost their homes due to that fraud, and there's no way to get them back since other people have already bought them in good faith.

Do the recommendations involve thumbscrews?

I live about three hours south of Chicago, but I sometimes listen to Chicago radio as I drive home.

There was an ad for a Chicago mortgage broker with the message: "Property values are going down, so refinance while you can, to get the equity out of your house". I didn't catch the name of the broker.

Can one be sued for economic malpractice?

eparker,

Tripp: It seems to me that you are infantilizing the poor, acting as if they should be exempt from responsibility for their own behavior. Talk about the soft bigotry of low expectations.

If I meant the poor I would have said the poor. I was speaking specifically about the authoritarians, and if you don't know what I mean then please read this great book. You can read it for free. Go ahead, I'll wait.

Now that you've read the book you know this statement is incorrect.

And it doesn't take a college education, or any education, for that matter, to know that you know better than a mortgage broker you met ten minutes ago how much money you can lay out each month.

If you have been taught to blindly accept what an authority figure within your group says with no critical thinking involved then you most certainly do NOT know whom to trust and you've actually been taught to trust certain people without skepticism or question..

Authoritarians will believe a deceitful flimflam man if he seems to be an authority figure and speak your language and be part of your group.

I'm not making this group of people up, and they are distinct from any social or religious or economic group, although the fundamentalist religions attract a huge number of them.

I'm not infantilizing the authoritarians. I'm not even criticizing them. I'm simply pointing out that they do exist and that their qualities may lead to problems for all of us.

Tripp: I'm so happy you enjoyed the one book you've read, but it is pretty much impossible that everybody who bought houses they shouldn't have bought falls into one highly specialized category. And even those that do are responsible for their behavior.

Sadly many have to learn that Living the American Dream is not for ALL Americans.

WWJD?

Didn't Jesus say that whatsoever deception and exploitation you practice on the least of my brethern is totally OK, because they're pathetic losers who only exist to be preyed on by the rich and powerful? I think he also said: blessed are the rich, because you can't get into heaven without evidence of income and assets that put you in the top 3% of your nation's income brackets.

"But there is a big group (probably about 25% or so) of Americans who did NOT get that education and who instead were taught to blindly trust what someone from their in-group tells them and to ignore and be hostile to the rest." - Tripp

Tripp! Stop insulting the Obamabots!

eparker,

I agree. Let me clarify. Authoritarians (and everyone else) who are suckered (and not victims of outright fraud) deserve what they get.

The rest of us should not pay any price for the deceit but we do pay when the deceit threatens to bring down the whole system.

Authoritarians, left to themselves, don't really cause any problems for anyone else. But let them start following social dominators (who are naturally attracted to the gullible) and you've got a very bad combination. The social dominators, who do lack morals, will use the authoritarians to try to achieve power over the whole shooting match. That's why we made the bad decision to invade Iraq. That's why we are facing the loss of our rights. That's why our constitution is under attack.

That's why some people seem to never learn when their crooked leaders turn out to be crooked and don't give them what they promised.

optical weenie,

Authoritarians are not limited to any single group, although they tend to be attracted to certain groups. Plus we've all got the trait to some degree.

Also examine almost any politician and you'll find a social dominator to some degree. The really bad combination is when someone is both a social dominator and an authoritarian.

After Bush was (barely) elected he claimed "I've got a mandate and political capital and I'm going to use it." The authoritarians believed him and no one else stopped him.

But although authoritarians may be found anywhere they definitely are drawn to fundamentalist religions and to the modern Republican party. In hindsight it was actually when all this started to become public (before Bush the first) that I left the Republican party. I didn't have the terms to describe clearly what was happening but I knew I wanted no part of it.

Tripp,
I'm sorry my snark upset you. You gotta take my posts less seriously, like everyone else does.

" POLICY RECOMMENDATIONS

• Ban yield-spread premiums and prepayment penalties on subprime loans;"

In general I don't like the government interfering with a lender setting premiums.

I also don't see why a lender should be allowed to penalize the borrower from making pre-payments on sub-prime mortgages.

" • Create a system of accountability where lenders and investors share responsibility for brokered loans;"

This, I think, is going to be a very hard negotiation and the government might push for it, but probably won't have a direct influence. The government's interest is in seeing it gets done and not necessarily on the outcome.

" • Establish clear broker duties to their clients."

This, OTOH, is a place the industry, with a lot of government involvement, can establish some regulation and guidelines not to be broken without clear penalties.

" CONSUMER RECOMMENDATIONS

• Obtain multiple quotes before committing to a home loan, with at least some from retail lenders like banks or credit unions. Do not assume that any lender will give you the best or even a good rate."

Wise advice, but law? I don't see it.

" • Ensure that at least one loan option from each lender is a standard fixed-rate mortgage that pays off principal and interest every month."

This might be something the government/industry can insist on to protect banks and the public.

" • Examine both interest rate and total fee costs. Ask questions about changes in scheduled payments and how high payments can go."

Again, this could be required under government/industry rules. Force them to put it in writing!

" • Avoid loans that have prepayment penalties that can restrict refinancing and support the yield spread premiums that lead to higher interest costs."

The government/industry rules should require any penalties which are continued to be allowed to exist to be in writing and announced to the consumer, perhaps with an example of when it would come into effect.

" • Before applying for a loan, review your credit reports and credit score."

Useful, but not controlling behaviors and therefore not preventing future problems.

--------------

WWJD?

I'm not sure, but one of my favorite parts of the New Testament was the money changer's episode in the Temple. I wonder if (when?) the economy does go Tits Up Major, whether the social conservatives will turn on the economic conservatives AND the (Dem/Rep) neoliberals in a HUGE way. I think they will.

April 04, 2008

The Crooked Citizen takes a Mortgage
.
John and Jane, brokers, sit in their mortgage originator store front office. They spy a couple reading their window adverts.
"Come in, come in. And how are you lovely folks today?"
"Good." "Good."
"May we ask you if you rent or own?"
"Ah, you rent. $900 a month and it's tight. We see." (They huddle a moment.)
"Folks, we've assessed your case and our thinking is if you sign right here for a thousand a month mortgage, we'll see that you get a quarter of a million dollars to get that home you have your eye on. How's that?"
"Don't you have to write down all your credit card debt?" "No. Your application looks great, just as it is."
"And what will your mortgage and mortgage rate be at the end of the initial term? No one can say for sure but the standard operating procedure is that you come back and refinance with the new higher value of your home". "Everybody does, just SOP, right Jane?"
"SOP, everybody does."
"You're curious how we get paid. Well, it comes from the lender's part of the deal. It isn't a lot but we get to put good folks in great homes. That's a big reward right there."
"All set? See ya later. You're welcome, thank you."
John and Jane high five, laughing!
"What a couple of con artists those two are, borrowing a quarter mil on their credit record."

optical weenie,

I'm sorry my snark upset you. You gotta take my posts less seriously, like everyone else does.

I wasn't upset. I have a pretty good idea you'll be able to tell when I'm upset. :)

Instead I was pedantic. I rate low on the authoritarian scale as I suspect you do, so even if I were an Obama supporter I would be on the lookout for authoritarians within my group. Hopefully I could also see the trait in myself if it existed, although if I had it then I wouldn't be able to see it. So not seeing it proves nothing, but knowing that not seeing it proves nothing proves I don't have it. If you follow that spaghetti logic then you probably don't have much authoritarianism either.

For the record I will happily and enthusiastically support either Democratic nominee. I don't have a preference at this time.

Doc,

The authoritarians won't turn on anyone, or at least they'll turn on who they are told to turn on.

While claiming that the Bible is the most important book in their lives they are also very ignorant of what it says. They don't really read it. They listen while their pastors pick out selected scripture to make a point but that is about it. They don't need to read it. Their pastor tells them all they need to know.

Tripp,

They are unquestioning followers true, but sooner or later ... there is going to be a Pat Buchanan with a big ass Bible that's gonna stir 'em up-wait and see. These people haven't been economically challenged since they scored big in 1994. Faux prosperity is over.