MSI: Mr. Banker, why did you agree to this Q & A session?
Banker: I've just grown tired of how homeowners have been
Treated and misguided by the banking industry and now the industry is even blaming borrowers' for the
current mortgage mess.
MSI: Could you tell us more about what you call "the mortgage mess?"
Banker: Well, it's simple you see. The record foreclosures that are now plaguing this economy are
summarily blamed on homeowner's buying more house than they could afford and on the speculators. And it
is a fact that many people are in housing contracts they cannot afford. What is not being said is that the banks
have in the past and are now promoting lending guidelines to the public that motivate this behavior and is all
part of a perfect distraction that has been going on for decades.
MSI: What guidelines are you referring to?
Banker: Without going into too much detail, banking guidelines have been restructured, reformed, and redone time and time again. And this occurs from the top down not from the consumer up. And these reforms have two aims and that is to 1. make more profit by making more loans and 2. to sustain that relationship, which really becomes an authoritarian relationship, almost a big brother type arrangement, as long as possible.
MSI: How does that work?
Banker: This has become a mother-child relationship and the banks have rocked all of America to sleep by making them comfortable with their payments. And payment is a big part of the perfect distraction along with interest rate.
You see we have realized in banking that as long as we could keep borrowers satisfied with payment, they would be unalarmed by the true high costs of their loans. They wouldn't even want to know the real costs. Almost no one would notice that their principal loan amounts virtually never budged and that they would be forever paying interest.
Now the illusion that you could afford more house, because the banks and their policies made you comfortable with the payment did help the housing economy. More expensive houses were sold and with this propped up growth in demand, housing prices continually moved higher. Mind you, all of this is happening while real income growth is declining.
Is this not a formula for a real mess?
Higher housing values also propelled the refinance market and we made more and more loans all predicated on the attraction of low payments; which really meant you would pay us forever. Feed the mortgage pig!
MSI: The perfect distraction; could you clarify?
Banker: Without getting too technical. Well, I'll use this. I've been fascinated with the world of magic since I was a kid. It took me a while to discover the number one secret of all great magicians. Once I knew this, I became a really good amateur myself. You're a smart young lady. Do you know the magic answer to all magic tricks
MSI: I'm not that smart. What is the answer.
Banker: In one word the answer is, distraction. To make it clearer. The hands are quicker than the eye only because the eye is easily distracted. So every great magician is first great at distraction.
We've done something similar in the lending industry. The loan formula includes principal, rate and term, which all go to make up the contract. Banking has stretched, adjusted and optioned the rate and term in order to lower payments. Lower payments act as a financial sedative for homeowners. And not once in recorded history has anyone done anything to affect or lower the principal amount of the loan, which is where the real action is.
Banks know that as long as you maintain a principal balance, no matter how low the payment, we have a consumer chained to us for a very long time or payment horizon. So interest rate, term, payment are distractions from what really matters, lowering the principal as fast as possible.
MSI: How is this distraction affecting the homeowners' bottomline?
Banker: I believe that almost every homeowner is paying tens or hundreds of thousands more in interest than they should be. And that's on top of closings costs and other expenses.
MSI: But aren't consumers smart enough to recognize this?
Banker: In the art of war, the ambush tactic is so successful because of the element of total surprise, which means the victims of the ambush have no knowledge of how it has been constructed, or what measures may have been employed to prevent escape.
We've tied homeowners to payments in such a way that if anything upsets their equilibrium or stability like a job loss, disability or illness, payment adjustment or an unexpected drop in their home value and the homeowner becomes a victim of the very payment he was once comfortable with. The ambush is successful.
MSI: Well, they can't fool all the people all the time, can they?
What is so ironic about the homeowner, borrower, consumer or what ever we wish to call them, is that a great majority would have feelings of guilt about changing their traditional programs even after they became aware of their position. Some dare not even look for alternatives or better programs.
So we can expect and the banks already know this, that many people will not change even if the change were 10 times more rewarding for them and their families. The oppressed begin to identify with the oppressor.
MSI: How can the local branch help the consumer?
The guidelines and policies that control this industry aren't even known by your local branch. They just perform the mechanics of the lending operation and collect fees. We see no benefit in making banking employees knowledgeable outside of their immediate functions.
And if you ask the average or above average homeowner to explain their mortgage contract, you will get the interest rate and most likely how many years the loan is scheduled to last. How much is it really costing? They don't have a clue. By the way, how much is your interest costing you?
MSI: I really couldn't say. I don't know.
Banker: My point, exactly.
These are my true feelings and I have much sympathy for the homeowners who are unaware of the negative effects of their situation and what their alternatives are.
MSI: Thank you Mr. Banker
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