NationStates Jolt Archive

So I am watching the foreclosures in my area out of a morbid curiosity. In my zip code there are over 900 homes taken, behind in their mortgage or about to be taken.

Since it's a frequent topic of conversation; what I find interesting is it seems to me that there is a perception that the problem lies with the home owner.

I often hear "A person bought more house; a person shouldn't have taken the loan; a person was greedy...."

Yet, the complaints against the financial institutions seem to be more procedural errors rather then outright greed or worst. Mind you as things get worse; the "evil corrupt" complaints have increased.

One thing in the US; I have noticed is this notion to protect or feel sorry for wealth. We have to protect the institutions and their management because it was not really their fault or it would only make things worst. There are people(at my office) who express actual sadness at the amount of money a millionaire/billionaire losses. There are even efforts to argue/defend tax laws, etc. that do little or nothing for themselves but will greatly enhance those at the top. For example, joe the plumber talking about the mccain plan being better then obama.

It's as if people have this dream that they could be millionaires so they should protect those at the top in case they could be there some day and might be affected by taxes, etc.

So just a curious non-scientifical question. Who do you blame for the mess and for what percentage?

I place it at 70% the financial institutions and 30% the consumer.

There are consumer abusers. For example, my wifes boss told her that her in-laws would remortgage so they could have money for a new car or to take a trip. They not surprisingly have all been foreclosed. Such stupidity should result in that action.

Now as to financial institutions, who do we go from instant denials for loan apps to "just take an apr!?"

Even when I was in the process of buying my home, I wanted a fixed loan. I went in with zero debt and I had a down payment! The institution (I checked a couple banks) would not fully finance my loan. If I took an arm, they would. I had to take a second loan which was a home owners loan with a variable rate. I had to keep it a year and then I could refinance. Which I did. If I hadn't, that second would have killed me.

Even what is interesting if the fact that rates are at an all time low but the banks have raised the standards so much; few people can take advantage of them. For example, a buddy has a flawless credit history, assets, etc and was denied a loan for a second property.

Like I said this is a curiosity about perceptions, etc.

I blame the politicians (and there are a LOT of them) who'd rather be a supporting character in a horror flick than admit that they're at fault.

One thing in the US; I have noticed is this notion to protect or feel sorry for wealth. We have to protect the institutions and their management because it was not really their fault or it would only make things worst.


Obviously, as I do not live in the US, I cannot say for sure. But I believe this to be total bullshit, the general attitude in the US is that you need to protect the financial system, or you're fucked, subtle difference.

There are even efforts to argue/defend tax laws, etc. that do little or nothing for themselves but will greatly enhance those at the top. For example, joe the plumber talking about the mccain plan being better then obama.


Generally people believe this not because they want to protect the rich, but they believe that it stimulates the economy in general.

Generally people believe this not because they want to protect the rich, but they believe that it stimulates the economy in general.

I don't know about the UK but where does the majority of job creation happen?

Many in the US argue, it's wealth and yet numbers point to the small business owner.....

The problem is, you really can't cheat an honest man-provided he honestly knows how much he's honestly making.

Most of the blame belongs on the Mortgage companies for, not procedural "errors' but for Fraud.

CRA opened the door for 125% Mortgages by forcing FNMA and FDMC (Fannie and Freddy) to back "low income" mortgages. How it works, is that the Mortgage company goes out, and finds an appraiser who wants to eat and is willing to appraise the property at a higher value than its actual value. Then, they sell a mortgage to some fool who's already swimming in credit-card debts on the assumption/sales pitch that the property will continue to increase in value sufficiently that he can either refinance, or sell the property if he gets too far behind.

The inflated mortgage is then sold, and bundled with good mortgages-mortgages made to people who CAN afford the payments and interest and have good credit. The bundle is sold at a further markup because the bad mortgage is hidden in good ones. Prior to the Real-Estate meltdown last year, Real-Estate was considered a "Safe" investment, so trading houses buy the inflated bundles thinking they're going to go up in value.

The fraud at the beginning is exacerbated by city, state, and county officials-why? because many states rely on property taxes, and it's cheaper to just look over sales-prices to calculate property tax, than to go out and physically evaluate the property before assigning the tax. Higher sales-price also is desired by sellers. Thus you get some of the dangerous shacks in bad neighbourhoods selling at a quarter million dollars when they're essentially wrecked and unsafe. (I saw this in person while house-hunting two years ago.)

Because Fannie and Freddy were legally required to buy "unsafe instruments" (that is, upside-down mortgages the buyer has no hope in hell of paying), brokers were making big moolah off of promoting such dangerous instruments as the ARM (Adjustable Rate Mortgage), Interest-Only mortgage (an instrument intended for house-flippers and developers-the idea being to pay interest while working on the property, then sell it off before the principle comes due, this was used extensively to get people into houses their income could not support), and other dangeorus instruments-which wouldn't BE dangerous for someone going "Up" the income scale who needed a hand, but ARE dangerous for the kind of people they were targeting with the advertising.

I make over thirty-two an hour, and I can't afford a house, because I can't afford the Mortgage- lots of people were willing to risk the house of cards coming down on them for a lot less per hour by relying on credit-overloaded credit, debt...

It's largely not their fault-most people have grown up and been raised to spend more than they have coming in. "Easy Credit Terms", "Low Financing", "zero Down" are the phrases used most often, and all of them are traps. The problem that caused the meltdown is twofold:

1. There's a limit to how much debt anyone can sustain, and by extension a limit on how much debt any system can sustain.

2. There's also a limit on the combination of "Willing and able" buyers-prices can't rise 150, 200, even 300 percent and sustain the rise-eventually, you run out of people who can, even with EASY credit, afford to sign the instrument. When that happens, the last guy holding the ball gets nailed-the value of the property he bought was artificially inflated, and he's paying the tax on that inflation, but he can't sell it for what he owes, he can't make the payments, and he's not going to be able to refinance.

so, you get lots of foreclosures, because a fraud was perpetrated at each and every level from the buyer, through the various brokers and banks, all the way up now, to the Federal Government.

I don't know about percentages, but I place the majority of the blame on the companies. It isn't that I don't think there were people who intentionally bought more house than they could afford or otherwise tried to get around the system. I just don't think they were the majority.

And the companies that pushed sub-prime mortgages didn't just offer mortgages and approve those who somehow qualified for them. Instead, they stepped into the role of financial adviser. They intentionally targeted buyers who most likely couldn't afford their homes for advertisement. They then proceeded to advise these buyers on financial matters - telling them how much mortgage they could afford (generally glossing over the details and convincing them to buy much more home than they could actually afford).

Most of these buyers had no reason to believe that everything wasn't kosher. They were generally first-time home buyers and were also likely to be first-generation homeowners. They aren't financial experts. And they had no reason to believe that someone would lend them money if that someone - who was supposedly a financial expert - thought they couldn't pay it back. So they believed it and signed on.

I agree with Dem. Granted, a lot of the people taken in by bad lenders were not entirely unwilling dupes. As Sudova said, there's the saying, "you can't cheat an honest man." That doesn't necessarily mean that the borrowers were also crooked, but I do think a lot of people suspended their disbelief and set aside their mistrust in order to believe what these experts were telling them -- that the loans they were signing onto would in fact be manageable, that the lenders would work with them to see through economic ups and downs, etc. It's very easy to believe such lies when they come wrapped up with every trapping of truth AND are offering you something you really, really want.

There's another saying, "if a deal sounds to good to be true, it is." I suspect a lot of people who took on their mortgages with every intention of keeping up with them, forgot that adage. If they had been 100% honest (with themselves) they might have passed on the great loan offers, thinking, "I don't know, that sounds like I'd be cutting things a little too close."

That said, though, I put most of the blame on the lenders because they clearly violated their own fiduciary responsibilities as well as engaged in conflicts of interest in how they conducted their business, setting up these future failings so they could make quick money in the short term -- and exploiting the lay public's lack of knowledge about the technicalities of finance to do it. That's not how banks are supposed to operate.

Let's hope the Bernie Madoff scandal will make people more skeptical of supposed "experts" telling us it's okay to trust them with our money decisions.

Some people were greedy and some people were irresponsible, taking on a debt burden they knew they couldn't afford out of greed and consumerist unwillingness to be responsible. That's always the case in any financial crisis, and I feel they deserve the punishment the market metes out to them.

That being said, the vast majority of people that have lost their homes were those that were misled, made a mistake or were downright deceived by lenders. Sometimes, there was an element of complicity in their actions, where they should have known something was up (such as the stated-income loans) but went for them anyways out of perhaps nothing more than just an overzealous desire to realize home ownership. Other times, they simply screwed up; if you got an ARM in 2001, when rates were falling and kept falling for three years, it was hard to imagine a significant spike in interest rates, especially one as steady as the 2004-2006 hikes and so were not financially prepared. And, of course, there were people who were flat out deceived, tricked by financial legerdemain in to loans that they could not understand or about which the lenders failed to provide adequate information.

Truth is, it doesn't bother me to see the speculators and homebuilders washed out, because their actions made life hell for the people unfortunate enough to be caught up in that frenzy, especially renters and others victimized by the gentrification of areas caught up in the bubble. Their greed ultimately devastated home prices for the millions of people who had no stake in that boom and so they deserve the market's punishment for the harm they inflicted on others.

Some people were greedy and some people were irresponsible, taking on a debt burden they knew they couldn't afford out of greed and consumerist unwillingness to be responsible. That's always the case in any financial crisis, and I feel they deserve the punishment the market metes out to them.

That being said, the vast majority of people that have lost their homes were those that were misled, made a mistake or were downright deceived by lenders. Sometimes, there was an element of complicity in their actions, where they should have known something was up (such as the stated-income loans) but went for them anyways out of perhaps nothing more than just an overzealous desire to realize home ownership. Other times, they simply screwed up; if you got an ARM in 2001, when rates were falling and kept falling for three years, it was hard to imagine a significant spike in interest rates, especially one as steady as the 2004-2006 hikes and so were not financially prepared. And, of course, there were people who were flat out deceived, tricked by financial legerdemain in to loans that they could not understand or about which the lenders failed to provide adequate information.

Truth is, it doesn't bother me to see the speculators and homebuilders washed out, because their actions made life hell for the people unfortunate enough to be caught up in that frenzy, especially renters and others victimized by the gentrification of areas caught up in the bubble. Their greed ultimately devastated home prices for the millions of people who had no stake in that boom and so they deserve the market's punishment for the harm they inflicted on others.
I don't feel badly for speculators. They have to be prepared to lose money, as well as earn it. I am surprised that banks were not more anxious to re-negotiate terms with folks that were facing default. After all, it costs a bunch of money to conduct a foreclosure, then have to hang on to the house, or sell it at firesale prices in a bad market. Much better in the long run to reduce the ARM and forgive a few payments... We shouldn't have needed the government to step in, just a few reasonable lenders to step up.

I don't feel badly for speculators. They have to be prepared to lose money, as well as earn it. I am surprised that banks were not more anxious to re-negotiate terms with folks that were facing default. After all, it costs a bunch of money to conduct a foreclosure, then have to hang on to the house, or sell it at firesale prices in a bad market. Much better in the long run to reduce the ARM and forgive a few payments... We shouldn't have needed the government to step in, just a few reasonable lenders to step up.

Why renegotiate when you know the government will bail you out? Too much effort.

Pretty much everyone is complicit to an extent but the major malefactors are:

Banks and financial system 30%
Government 25%
People facing default 20%
The 'edukashun' system 15%
Other homeowners 5%
Rest 5%

The way the banking bailout has been done is a travesty. Not only should there be clawbacks from bank management to make the taxpayer whole, there should also be clawbacks from the rest of the system that supported the fraud (ratings agencies, law firms, auditors &c). Anyone who profited from this should be under the microscope, and their assets seized where appropriate. Said assets then to be used to make things like pension funds &c. which have suffered whole, and to offset taxpayer losses.

Think of it as the Walpole II plan.

And of course there should be criminal prosecutions all over the shop.

Bear in mind however, this is more than just mortgages. It is a general credit bubble, from residential mortgages to student loans.

snip....

so, you get lots of foreclosures, because a fraud was perpetrated at each and every level from the buyer, through the various brokers and banks, all the way up now, to the Federal Government.


That right there is the problem.

Blaming the victim is the American way.

Blaming the victim is the American way.

No. Blaming the victim is the Middle-Eastern way, at least when it comes to rape.

The American way is to do a half-ass job. Didn't you learn that from the Simpsons?

It is worth pointing out at this point that a great many foreclosures were (and presumably still are) not the result of the financial crisis/mess at all, and as such the people being foreclosed on aren't its victims.

These people took out loans that they were only able to service in a benign environment, with intro-level interest rates and an assumption of the Fed keeping things below 2% beyond that. It was ultimately the Fed slowly increasing rates at the end of Greenspan's and start of Bernanke's term that saw the rate of foreclosures spike, with all the subsequent trouble that then caused in the financial system.

So yes, there are many who are now losing their homes purely because they lost their income due to the crisis. They are its victims. The people who are losing their homes because their loans reset and they suddenly have to pay market rates are not. They may be the victims of shady marketing and sales techniques, if we want to assume a sort of benign stupidity on their part, or outright fraud at times - but they're not victims of the financial crisis. Indeed, the best link between them and the crisis makes them a cause!

Not that I think that argument would be a particularly worthwhile exercise, because it was a foreseeable one the financial system was in the position to deal with sensibly but didn't.

Having worked as a credit officer I can tell you this was a problem many of us saw coming years ago. I can remember customers who were up to their eyes in credit card debt (fuelling unprecedented debt-based growth) and refinanced it into their mortgages on the back of rising property prices. It didn't take a fool to realise these people were coming back every few months tens of thousands of dollars more in debt, and eventually growth based on debt and inflation was bound to retract.

Yes, greed is at the root of the problem. Greedy regulators who failed to aggressively target irresponsible lending. Greedy banks and lenders giving loans to people they knew couldn't afford them. Greedy homeowners looking to get hold of any capital they can.

In Australia, if a lender provides a loan to someone they know cannot afford it, the loan can be invalidated and the financial institution fined. Our banking sector is still afloat.

In Australia, if a lender provides a loan to someone they know cannot afford it, the loan can be invalidated and the financial institution fined. Our banking sector is still afloat.

So... any wagers for how long before the next great colossal debt crisis?

So... any wagers for how long before the next great colossal debt crisis?
2012, and watch the South-East Asian insurance conglomerates, many of them are drowning in bad debt and overexposure.

Don't hold me to that, but that's where my bet would be

Well, when I was looking for a house, I had a mortgage broker tell me I could afford WAYYYYY more than I was making. Instead of letting him talk me into it, I walked out.

So yes, it's the financial institution's fault, but it's also the consumers for taking leave of their senses and signing for contracts they can't fulfill.

It's hard enough for most people to resist a car salesman when he offers you to get a bigger engine... for a greater price difference than the entire new engine costs. That's something you don't need for money you don't have.

Now, how easy would it be to resist buying a better house, when you're assured that you can afford it, and when it really is a bargain since it doesn't depreciate.

In Australia, if a lender provides a loan to someone they know cannot afford it, the loan can be invalidated and the financial institution fined. Our banking sector is still afloat.

But that is not the free market you commie regulating bastards!

Greed is indeed a factor. Some of it is ignorance too as people assumed the loan people were working for both interests. After many people will say the bank does not want to hold onto property so why would they set up something to fail?

I like the idea of fines. Money loss is the only thing businessmen understands.