Enough Blame to Go Around

As we all watch the sub-prime market crash and burn, we need to recognize that there is enough blame to go around. More than enough. The federal government is in the process of dreaming up ways to help solve this problem, but a big part of this problem is unadulterated greed, followed by stupidity and laziness, although not necessarily in that order.  Let's start with greed. The predatory lenders had more than enough of this to last a lifetime. Many consumers, and agents, were blissfully unaware of predatory loan practices such as yield spread premiums. This is a practice where the loan originator gets a bonus for selling the consumer a product with a greater yield to the investor--good for the investor, bad for the consumer. There are some fine, upstanding mortgage brokers out there. There are some bad ones, as well. Some of the companies that have failed, like Ameriquest, deserved to. Ameriquest, after all, entered into a huge consent agreement in my state (Pennsylvania) as well as other states when their predatory lending practices, including pressuring appraisers, were revealed. Then we have the investors on Wall St.  The underwriters packaging mortgage backed securities for resale were greedy also. Per the Wall Street Journal, back in 2000, Standard and Poor decided that 'piggyback mortgages' --80/20 loans where the consumer has none of his own money in the deal were no riskier than regular loans. What were they thinking? In 2006, some genius at S & P finally decided to check it out, and found that the foreclosure rate was actually much higher on these loans. DUH! At this point, they changed the rating, but the damage was done. Then, there's the consumer. Did none  of these people ever hear the expression that begins: "If it sounds too good to be true. . . "??? Instead, we had lots of consumers who blithely took loans out with teaser ARM payments who never asked "How high can my payment go? How soon? What's the worst case scenario? Is there a pre-payment penalty on this loan? How much is it?" Finally, there is blame enough for the agents to join in. There was a time in this industry when agents were much more hands-on with respect to their client's financing. Real estate agents actually pre-qualified buyers themselves, running their income and debts through a worksheet, applying the appropriate ratios (different ones for FNMA, FHA and VA) and told the buyer what he could afford. The agents also recommended lenders, and were knowledgeable enough to compare products. We've gotten lazy. We hand them over to lenders and say: "Call us back when you have a loan." Instead, we should be doing our own pre-qualification, giving the buyer questions to ask, and helping them to compare loan products.  Should the Feds bail us out? On the one hand, we have hapless consumers who may lose their homes. On the other hand, you can't fix stupid. I'm in favor of very limited support--options that would help homeowners refinance, but would not make other taxpayers essentially pay off their ill advised mortgages for them. As far as the predatory lenders go, they are getting what they deserve. In many states, no license is needed to be a mortgage broker. That's something the Feds should fix. The FBI has gone on record as saying that the reason we have so many predatory lenders out there is that a business that generates as many billions of dollars a year as the mortgage business does has, and is, attracting career criminals. You know--former drug dealers. After all, rarely do mortgage brokers get shot when a deal goes bad. The sophisticated Wall Street crowd certainly knew they were blowing smoke when they decided 80/20 loans weren't risky. They deserve to go without their six or seven figure year end bonuses. Sadly, some investors at the end of the food chain are already being affected--those securities were bought for them and put into portfolios.  And, as far as the agents go, we're due for a correction in our ranks. There are a lot of agents out there who are going to leave the business--and many of them should. They aren't competent; they aren't prepared for the market we are in, and it's way too much like work for them. Bye-bye--this is a serious business, and be in it to not only succeed, but to serve the consumer. If you can't take the time to learn about financing, or learn to qualify buyers, then leave now.  Let's strive to get our industry back on track from the inside out. We need to be competent, and we need to identify competent lenders we can honestly recommend to our clients. We need to understand that not all consumers can be home owners, and some that can be someday can't be today. We need to take charge of our business, and move forward.