Why is it that people are shocked that after walking on the edge of the garbage dump, they go home smelling like a garbage dump?
Politicians, CEOs, corporations, LOs, and all the rest of us too. Every one of us has to decide that we will not participate in anything that has even a chance of looking shady or suggests impropriety.
That said, Loan officers sold what the mortgage companies provided. Mortgage companies created what Wall street wanted. Higher and higher risk can lead to greater and greater payoffs, but at some point we cross over the boundary of risk vs reward. Well we did and found diminishing returns. Really, really diminishing returns.
However, if the default rate on these products is as high as 20%, then had wall street and the mortgage companies not offered these products then the 80% of home owners who used these products who are making all of their payments on time would not be home owners now.
Could the lenders have been a little less aggressive and offered fixed programs instead of adjustable, then as many as 80% of those in default would also be just fine.
Finally, as Americans, we tend to believe things will turn out for the best. When the home buyer or refinancer was told that they'd have 3 years to fix their credit, that sounded pretty reasonable - forgetting that they'd need to actually work on their credit. When told that they'd certainly be earning more money three years from now, that sounded pretty reasonable too - forgetting the old saying "never count your chickens before they hatch."
That leaves us with the minority of people who were taken advantage of by fast talking, sleezy loan officers. I guarantee, that as more and more are tracked down and held personally responsible and their brokers also held personally responsible for any losses there would be a lot less fraud. So, states and other investigative organizations, here's your marching orders, make examples of those individuals and restore borrower confidence.
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