I recently got a comment on one of my posts, "Stop Blaming The Mortgage Broker" from a member of the general public, who was, shall we say, not convinced by the arguments that I made in that posting.  Her specific comment was,

"Interest only loans, and some ARMs ought to have never been allowed.  Whoever allowed these frauds to be perpetrated on the unsuspecting comsumer should be in jail.  Is it the baby's fault he chewed on a poisonous toy from China?  You Cowards."

And while I understand the frustration that her and many like her have with the whole mess, I think that her comment illustrates that many in the general public still want to place the blame for the current mortgage crises at the feet of the mortgage brokerage industry.  To do this is simply and utterly wrong!

As I pointed in that post and in others, it wasn't the brokers who developed these products, underwrote them or funded them.  We simply originated them.

Now, again as I pointed out in that post, I'm not excusing any bad behavior on the part of many brokers.  If someone lied, cheated or stole, then they need to be tried and, if convicted, put in jail and/or fined.  

But, if they were on the up and up.  Properly disclosed to the borrower all the terms of the program and were simply doing their job, then leave them alone!  It's no different than Sears selling someone a law mower.  If they were properly disclosed to as to the dangers involved in that particular product and they chose to move forward, then the blame should lie with the borrower.  Nobody put a gun to these people's head!

In this lady's comment she says;

"Interest only loans, and some ARMs ought to have never been allowed." 

I disagree.  In the right circumstances, with the right borrower, even the payment option arms had their place.  I put a close relative of my girlfriend in one.  She had a bunch of charge card debt that she was paying 18, 19 and as high as 24% on.  We put her on the payment option arm, she made her house payment at the teaser rate, which freed up her income to pay down the charge card debt.  Which she did in less than 18 months.  At which time we refinanced her back onto a 30 year fixed rate.  

The program worked like a charm for her.  Should she had been denied the opportunity to utilize this program because some borrowers (many less than the press would lead you to believe, by the way). got in over their heads or made bad decisions?

The lady also says;

"Whoever allowed these frauds to be perpetrated on the unsuspecting comsumer (sic) should be in jail."

To this I say, if it was fraud, then I agree.  They should be put in jail and/or fined.  However, let's be careful exactly what fraud is.  Simply putting somebody on one of these loans, isn't fraud!  Again, if the broker properly disclosed to the borrower and the borrower decided that they wanted to move forward, then that is simply a business transaction.  Nothing more!

She goes on to say;

"Is it the baby's fault he chewed on a poisonous toy from China?"

My reply; No, it's not the baby's fault of course, but is this the same thing as selling a legal product?  In her example there was a law broken.  It is illegal to import to the US any toy that contains over a certain amount of lead in or on it.  

When I originated an interest only loan or a payment option arm, they were legal products to sell.  I also had to disclose to them the terms of the mortgage, that is;

1) The amount they were borrowing.

2) Their interest rate.

3) Their "APR".

4) If it was an adjustable, the specifics about this particular adjustable including the index that the loan was based upon, the margin and the adjustment period.

5) How much their closing costs were going to be.

6) How much I, as the broker, was going to be making on this transaction.

7) The historic performance of the particular index that the loan was associated with.

I also had to point out several other things to the borrower such as that there is the possibility that if they shopped around that they could possibly get a better deal that what I was offering.  Can you imagine a car dealer, a jeweler, or any other kind of merchant being required to tell their customer,

"Oh, by the way, just in case you didn't know it.  There is a possibility that if you shopped around some more that you might be able to get a better deal elsewhere!"

Yeah, right!  The wild thing is that these facts are disclosed to the borrower at least 3 times, sometimes as many as 5 times!  Yep!  The poor borrower!  They "weren't told".  Bxllshit!

Don't get me wrong.  I do feel for people who got in over their heads and I've come out for the government stepping in to buy these mortgages (at a steep discount - I wouldn't want this to turn into a bunch of fat cats sucking at the government tit) and then working out as many of these loans as possible.  You can read my plan in my post, "I'm From The Government".

All that said, people and politicians should cool their jets.  If you're going to access blame, put the blame where it should be.  On the Wall Street types who created, underwrote and funded these mortgages and the borrowers who took the chance.  Not the mortgage broker!

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.
 

Bob Mitchell is the president of ValueList Real Estate Services, Inc., St. Louis' largest discount/full-service real estate and mortgage company.  To find out more about Bob, ValueList or our flat-fee listing program please feel free to visit our web page, valuelistre.com