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Banks offer loans that people can't afford and freely advertise those products.
Tobacco companies make cigarettes that people shouldn't smoke and freely advertise that product.
The decision to use a certain product, even though it's bad for you, totally rests on the user. Whether it's taking the first puff...or the first dollar...the ultimate decision is with the taker. No one can force you start smoking...no one can force you to take money.
Seriously, jfkIII. Weak comparison...
I am sure that when tobacco companies started out, they didn't even know how bad cigs were. Smoking was glorified and romanticized. The unknowing public became addicted because of that. They had no way of knowing. I am sure that the tobacco companies then found out and tried to keep a lid on it as they sold their tobacco, UNTIL it was pounded in the public's heads. Tobacco companies were then FORCED to admit that they did cause cancer and other ailments...they were bad for you and people around you. They were forced to take the ads off TV and out of mags. They were forced to put disclaimers on their products. They should have been shut down and made illegal, but that was not to be. Too much money for the gov.
Its ok tony, not interested in splitting hairs on the degrees. I think we got about as close as we will get. I dont know why I keep returning here for more punishment lol.
Personally, I am glad you keep coming back. You have provided a great view of how things really are, IMO.
I read someone's post here that said that the borrowers most likely fudged their income to get the higher loans. HOW??? I have bought a few homes in my day and I had to practically give my blood for DNA so they could come up with a figure I qualified for. They asked for months of bank stmts, tax papers, W-2s and much more. How in the world do you fudge all that? And if you get away with that, then I really believe that someone was slacking on their job.
I am sure that when tobacco companies started out, they didn't even know how bad cigs were. Smoking was glorified and romanticized. The unknowing public became addicted because of that. They had no way of knowing. I am sure that the tobacco companies then found out and tried to keep a lid on it as they sold their tobacco, UNTIL it was pounded in the public's heads. Tobacco companies were then FORCED to admit that they did cause cancer and other ailments...they were bad for you and people around you. They were forced to take the ads off TV and out of mags. They were forced to put disclaimers on their products. They should have been shut down and made illegal, but that was not to be. Too much money for the gov.
When do the banks admit their wrongdoings?
Excellent comparisons up until the shut down and make illegal part. But it gives an idea. Make banks put HUGE BOLD disclaimers on their doors warning everyone of their incompetence.. and THEN let people decide just like cigs!!!
If it was a TV commercial I think they should have to run like a fast talking disclaimer at the end similar to pharmaceutical ads, After all the sunshine and happy faces are gone, they would say something like.
"no guns or arm twisting will be used in the destruction of the economy" LOLOL I crack myself up.
Excellent comparisons up until the shut down and make illegal part. But it gives an idea. Make banks put HUGE BOLD disclaimers on their doors warning everyone of their incompetence.. and THEN let people decide just like cigs!!!
If it was a TV commercial I think they should have to run like a fast talking disclaimer at the end similar to pharmaceutical ads, After all the sunshine and happy faces are gone, they would say something like.
"no guns or arm twisting will be used in the destruction of the economy" LOLOL I crack myself up.
LOL! Good one...they should also continue with, "No interest loans are not for everyone, if you begin experiencing loss of income, utilities, and start having prolonged feelings of high anxiety and depression, quit paying your loan and see your banker as soon as possible as you may be in deep sh**."
I read someone's post here that said that the borrowers most likely fudged their income to get the higher loans. HOW??? I have bought a few homes in my day and I had to practically give my blood for DNA so they could come up with a figure I qualified for. They asked for months of bank stmts, tax papers, W-2s and much more. How in the world do you fudge all that? And if you get away with that, then I really believe that someone was slacking on their job.
The NPR show "This American Life" has done a really good series of shows on the crisis as it has developed - the shows are geared for regular lay people and do a fantastic job of explaining many of the issues in way that is extremely listenable.
The first episode on the topic, called "The Giant Pool of Money" covers Ninjas and other low/no documentation loans. These shows are totally worth the time it takes to listen to them.
This American Life: The Economy (http://www.thisamericanlife.org/Economy.aspx - broken link)
LOL! Good one...they should also continue with, "No interest loans are not for everyone, if you begin experiencing loss of income, utilities, and start having prolonged feelings of high anxiety and depression, quit paying your loan and see your banker as soon as possible as you may be in deep sh**."
LOLOLOL... there could be a whole new thread based on this theme... and it would be a whole lot more fun than this one!! Thanks for the cigarette post that sparked the idea!!
Its the perfect solution to make all parties happy!!
The NPR show "This American Life" has done a really good series of shows on the crisis as it has developed - the shows are geared for regular lay people and do a fantastic job of explaining many of the issues in way that is extremely listenable.
The first episode on the topic, called "The Giant Pool of Money" covers Ninjas and other low/no documentation loans. These shows are totally worth the time it takes to listen to them.
This American Life: The Economy (http://www.thisamericanlife.org/Economy.aspx - broken link)
Great resources... This issue get very little attention, because if the public REALLY understood the full impact of how ROYALLY they were screwed up the @SS it would likely start riots!
Its ok tony, not interested in splitting hairs on the degrees. I think we got about as close as we will get. I dont know why I keep returning here for more punishment lol.
Yeah, we're as close as we're likely to get, but as I noted earlier, we weren't as far apart as first thought. I think most of the folks that have participated in this thread would agree that there was a lot of irresponsibility that occurred throughout the entire transaction chain; the buyer, appraiser, realtor, lender, etc. And the irresponsibility continued on post-transaction; the slicing and dicing of mortgage pools, securitization, rating agencies, etc.
Now, the point where we diverge is the degree of culpability. In your first post you characterized it as 100% a greedy banker issue. Then in a subsequent post you referred to the greedy sellers. Inconspicuously absent in your comments was the greedy buyer. I don't know how one can carry on a meaningful conversation about the housing bubble/burst without a reference to the greedy buyer. Your later recognition of the irresponsible buyer is when I recognized our perspectives weren't as divisive as first thought.
You've made several references to banks making loans that they knew were destined to fail. Loans that they knew ahead of time were going to be unaffordable. That they were motivated by short term gains to make irresponsible loans. Generally speaking, I don't believe that to be universally true. I'm not going to say it didn't happen, but I'm going to say the instances of banks making loans that they knew would fail, pales in comparison to the loans that were made to buyers that falsified information on their mortgage applications. I'll expand on that thought in a bit.
Quote:
Originally Posted by cmist
Since everyone likes to talk about FORCE. No one FORCED the banks to break all the rules and create loans that were destined to fail. Zero down, interest only, negative amortization, balloons, etc. All those are ways to give money to a person who does NOT qualify for a normal loan.
What rules were broken to create any of the loans that you go on to list? Every single one of those loan types has a perfectly legitimate reason to exist. And as often as you assure me that you have no interest in restricting my freedoms, your statement above implies that you don't think those choices should be available to people. So, my choices would be restricted to protect people from making bad decisions. And as an aside, while you seem to oppose zero down loans, Federal stimulus money is being used to provide bridge loans against the FTHB credit that allows buyers to get into homes with zero down. Are those loans irresponsible? Are they destined to fail?
OK, this is getting lengthy. I too am guilty of publishing a paper, but I want to add some substantiation to my opinion that speculative and irresponsible buyer driven mortgage fraud played a significant role in the housing debacle. I'd like to cut & paste the entire article but I'm limited to brief snippets. Ironically, the title of the article somewhat reflects the ongoing debate in this thread -
Hopefully, everyone will find that article relatively balanced as it discusses fraud perpetrated at various levels, not just buyers. I'll also point out that while reading the article it's important to recognize the difference between bank lenders and brokers.
Quote:
So-called ‘occupancy fraud’—in which a speculator claims he will live in a house he is buying when it is actually a property he is purchasing for investment purposes-- accounted for about 20 percent of all mortgage swindles during the go-go years of subprime lending...
Quote:
Fitch Ratings, for instance, looked at a portfolio of 45 subprime loans that defaulted within their first year and found that in two-thirds of the cases borrowers never occupied the property, though they said they intended to.
Quote:
In fact, among the five states with the highest rates of foreclosures, defaults by known speculators (that is, those who admitted they were buying investment properties) account for more than one-fifth of all mortgages going bad.
Quote:
But as soaring housing values made it possible for homeowners to refinance out of unaffordable mortgages using their new homes’ rising equity, lying on no-doc loans became common. One lender which compared 100 stated income loans with IRS data found that in 60 percent of cases, the income that borrowers claimed exceeded their actual earnings by 50 percent or more. BasePoint found in its study that some applications exaggerated income by as much as 500 percent.
Tony, I must say your last "paper" appears to be very well thought out. It feels much nicer to communicate in a civil way with you! We sure have come a long way.
Do you think together we can accomplish world peace if we tackle that after we resolve this issue??? LOL!
Heres a little breakdown on the parties involved if you want to keep this going... and Ill put my foot in my mouth about the 100% thing I said first. Although I still believe they are the ONLY party involved who had 100% control to prevent it from happening in the first place and I think thats more what I meant to say.
I'll add sellers, lenders, and investors into the greedy mix but give the lions share to the lenders & investors. 10% to sellers, and another 10% for the actual buyers that took out loans that they knowingly were not going to repay, or falsified docs. Neither you or I will be able to furnish proof of how many "Liar Buyers" there were or convince the other of anything based on anything other than speculation so thats a moot point.
REALTORS: I have a hard time calling realtors a huge greedy part of it but ONLY because I see their role as the person who just drives the home buyers around opening doors, they rarely delve into their buyers personal finances since they trust the lender has done that already. Buyers really dont need to be cheerleaded, the homes sell themselves and they are going to buy the home they want no matter who opens the door. (*providing they can get the financing*)
LOAN ORIGINATORS: I also feel the same about loan originators, who mainly shop the loans that are available, but dont create the actual products or have any real connection to the actual approval process itself. Loan originators are just a middle man like a realtor. They mostly educate a buyer on their options, and then gather loan conditions to submit to underwriting.
APPRAISERS: Dont fall into the greedy camp either, although a case could be made that they turned a blind eye and just did what the banks wanted, but it was more DO OR DIE than greed. They didnt stand to get FAT by doing it, the only reward was that they got to keep their job.
I put the least blame on the home buyers because I dont think their decisions were motivated by greed as much as they were motivated by a genuine fear of being locked out of the market, so they approached their lender with fear that if they didnt buy now, they could NEVER buy in the future, and its THIS very emotion that the lenders knew how to exploit so well.
Whatever excuses there were for taking out credit that you truly couldnt afford, you are on the hook for the money, and have consequences for failure to pay. And alot of the frustration I feel is that the homebuyers paid dearly for their bad decision while the biggest offenders had no significant consequence.
Whats ironic to me is that the people who make remarks like "no one put a gun to their head" are clearly stating that the banks are suffering too because so many irresponsible borrowers defaulted on them at the same time, but then again, who the hell approved them in the first place???
I will budge on this: Zero down loans were probably not the biggest issue, I just included that as an example. If a buyers FICO score is high enough, then its feasible to consider less or zero down. And you are certainly right that no rules were broken by creating loans with unrealistic repayment plans.
But what I dont get is, I'm not opposed to making it harder to get crazy loans because I qualify for normal conventional fixed rate loans and I dont need them personally. Why do you feel that a loan ought to remain available if the prevailing logic and data proves it has a 90% default rate? The truth is... the people who NEED those loans the MOST are the very same people who should NOT have access to them.
Cant they find a loan shark in Vegas that will cut off their arms if they dont repay instead of mingling in the national banking system?? That seemed to work in the old days right??
And for what reason, after hundreds of years of banking did they not already know how to assess the risks of their own products? The only answer is they did KNOW, and didnt care cause they were making a killing, and had no regard for their borrowers, their shareholders, and finally never even considered the far reaching effects it would have on the entire nation and now the world! What a price we ALL paid for their luxury to operate with reckless abandon.
This doesnt mean I want to have a personal say in EVERYONES finances, it just says that I KNOW their decisions can F*CK me up, and in fact they did, even though I was responsible. I dont feel very confident that they learned anything since they are being propped up and are NOT in existence due to FREE MARKET principles. By the rules of FREE MARKET, their model is a FAILURE, but was deemed "too big to fail". Funny though, they FAILED on such a monumental level because they were TOO BIG. Everything is reported BACKWARDS and IM SICK OF IT!!!!
I see the devastating effects this type of lending has had on the the buyers, the sellers, and ultimately the entire nation. But dont really see how it affected JP MORGANS bottom line, other than they sure scarfed up all their competitors quickly.
I dont know about Vegas but bank branches in Phx are so numerous they should actually be considered roadside litter!!! My anger is compounded by trying to understand how this "failing" business has the money to put up so many brick & mortar establishments when they dont have money!! And worse yet, NO ONE is even inside these branches and there are usually 5 tellers inside sitting around doing NOTHING!!!! NO JOKE!! How could I not be mad?? And why are people so content to end it at, "no one put a gun to the buyers" head??? Thats not even the tip of the iceberg!!!
I would like to address the issue of which is more culpable (a) banks' due diligence to verify loans were fake vs (b) fake loans from buyers.
The question is whether bank underwriting systems are sophisticated enough to pick up fakes. I would have tot so. And if they were not verifiable, then the loans should not have been approved.
From that perspective, I think maybe (a) is more culpable than (b).
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but I want to add some substantiation to my opinion that speculative and irresponsible buyer driven mortgage fraud played a significant role in the housing debacle. I'd like to cut & paste the entire article but I'm limited to brief snippets. Ironically, the title of the article somewhat reflects the ongoing debate in this thread -
Re:
