Great blog!!!!! I talk about this at least 4-5 times a day with people and buying what they really can afford vs. what the bank says they can afford. Our parents didn't live this way. I am glad that there has been a turn around. I know most people aren't but we couldn't go on the way we were.

I place the blame on the people who bought a home they could not afford.  The next crisis will be credit cards.  And then the blame will be on the companies not the individuals who bought a SUV, Boat, and motorcycle but let their house go into foreclosure.

You said it in a round about way, greed is to blame.  Plain and simple.

Paul:  I understand the tone of your post here, but have to say that I don't agree with you on it.  There is blame to be levied here.  If for no other reason than to attempt to keep this sort of thing from happening again.

While I don't have a problem with the brokers selling legal products or even of the Wall Street Investment houses creating new investment vehicles in order to take advantage of the appreciating housing markets, I do have a problem with the ratings agencies rating a pool of mortgages AAA+ (or the equivalent) when they knew that a large percentage of the mortgages that comprised these pools were not investment grade mortgages.

Wall Street got excessively greedy and now we're all paying the price.  In order to fix what went wrong, we need to acknowledge and accept what really was the root cause of this problem and then address it so that it can't happen again.

Bob Mitchell

ValueList Real Estate Services, Inc.

I find it somewhat ironic that you start this post with "I find it remarkable that we think we can actually assign blame for this (mortgage meltdown)..." and then you continue throughout your post to excuse everyone except the buyer and the fraudulent pseudo-professional from any responsibility. I understand that the buyer has the ultimate and final decision as to whether they do want to proceed but there are "professionals" there advising every step of the way, sometimes with disregard for the buyer's best interest. It seems that the looking out for the good of the client may have been subverted for the commission or fee to be made by those very professionals. That is where the immoral, unethical, and possibly illegal part of the perceived or actual fiduciary relationship comes into play.

BTW, the far reaching effects of "free for all financing and house price predicting..." are effecting everyone. The "huge influx of cash from the investors" is directly out of the pockets of taxpayers. Capitalism did not bail-out Behrs Stern, we did, and will continue to.

BOB & Atlantic Capital: I think the greed was all through the party Bob... Buyers were greedy, and specualted on real estate. Banks were greedy and specualted on loan products... Mortgage brokerages were greedy and liked the idea of refinancing all the ARMs in a couple of years. Investment banks were greedy and speculated on various vehicles that allowed them to take advantage of the environment.

So now we knwo that everyone was greedy. How does that help? How do we change that?

This sort of thing has happened many times through history, right down to the Revolutionary War period with vast land specualtion and related banking issues all the way up through the present "crisis" -- just another "oops" in managing the econmomy.

So, we can regulate greed. But as most main stream religions have found, it is not such an easy thing to do, succesfully.

Sorry, but I cant agree with you.

CRYSTAL & ADAM: I agree with you... we could not go on the way we were going, and so the specualtion has failed, and the folks who lost must actually lose. This includes the investment banks, the lenders, the buyers/borrowers, realtors, LO's, etc. That is what will prevent it from happening again. Not some mumbo jumbo about who is to blame.

Thanks all for your comments!

I dont think I excused anyone, Rich: I just dont see the value in placing blame on greed. And I dont think that it is only the buyers who are at fault. I think the fault is much more generalized than you seem to. I think it is systemic, not attributable to any professionals, or consumers, but to the system. Our system encourages greed and speculation, and these are the results. Historically these sorts of things happen frequently. Usually, it is the speculators that pay the price.

And incidentally, no tax dollars have been spent to bail out BEAR STERNS... at least not yet. A guranty has been made, but nothing has been spent. Capitalism is in fact what bailed out Bear Sterns, since it was a bank that purchased the company, not the government. So unless you know something even Bear Sterns and JP Morgan does not know, then I am at a loss to address your concern.

I am not sure what you mean that the money that is lost is all tax payer money...  perhaps you can clarify that.

I see a piece of blame in every corner of the industry, and some with just pure dumb luck.  The blame game is over, we need to pick things up and move forward with integrity, honesty and hope.

Great post.....and yes the blame is all around and some just need to step up to the plate and say they made a mistake.

Paul;

Good points and you are exactly right, everyone is to blame. It was like chum in the water and it is sad that some good people got hurt but if we do not learn from this we are doomed to repeat it. Even us in the real estate community that sold homes to clients we knew couldn't pay them back are guilty.

So what happened to those investors, by the way? They are cureently driving up the price of gas and oil as they are speculating on futures contracts. Notice a trend anywhere?

I am with you.  Everyone is truly to blame.  From the American public, banks, wall street, mortgage loan officers, and realtors. 

I think the blame goes to the buyers..the sellers who knew..the title companies who knew and of course the banks..lenders..MB's..LO's who lent money to people who truly couldn't really afford a home.

Borrowers are just as guilty as lenders.  Realtors too!  Why on earth would a realtor help a buyer get into a house when the monthly payment is more than the borrower earns?  That happened to my brother who made $10 an hour and he bought a $350,000 house and then refinanced it to $450,000.  He and his wife made less than $40,000 per year working two jobs and they had to get roommates to make the payments. 

Are cashiers at a fast food joint responsible if an obese person wants to order 5 double bacon cheeseburgers?

When the creators of exotic loans from wall street made a load of money turning the loan applicant with a 580 credit score profile into the "SIV" or sophisticated investment vehicle rated AAA then only to turn the "spicket" off creating the economic calamity we face today we now know what Chris Dodd (D) Senator from Connecticut and Chairman of the Senate Banking Committee that over sees mortgage lending activity was doing. No oversight by regulators  set the table for the above referenced players. (We don't need Dodd/Frank Solution JUST oversight by someone that knows what they are doing)

http://www.mortgagenewsdaily.com/6162008_Friends_of_Mozilo.asp

Great post.                              

Yes, I suppose we all want to blame someone... how about placing the blame squarely where it is deserved, on the "market" -- money was cheap, and available, and people used it to what they thought was their best advantage. It turned out they were wrong, and it was not to very much advantage at all...

We can blame legislators for that, we can blame lenders for that, and we can blame Realtors for that. We can blame borrowers, and we can blame lenders, appraisers, et al.

Blame everyone. BUT: it was a confuence of circumstances that created the issue. I do not for one minute believe that the vast majority of involved professionals, at all levels, intended to have this consequence. Greed was the driving force. But then, even greed wants to have continuing relations with paying customers.

Folks speculated. Folks lost. Now we need to move on.

I really think we need to be accurate here: the word to use is SPECULATORS, not investors. It is a question of the degree of RISK. Risk was high, but potential rewards were as well. Perhaps many people ignored teh risk, but then these folks would simply be BAD SPECULATORS who did not understand what they were doing. This includes banks, lenders, mortgage brokers, real estate brokerages, and the whole lot.

Thanks all for your comments.

Whoa!!!  As an agent working half the time as a buyer's agent and working the lower end of the market I am way fatigued with my type of client being blamed for buying houses.  The self-employed, the seasonal worker, the buyer who just wants a better place than the lousy rental they are in - all these people are NOT being served well by the current lending market.  There is a huge pool of people out there who want to buy AND ARE CAPABLE but can't right now.  For instance their income is not enough to qualify them for a house that will go FHA or RD - or they can buy but only qualify for enough for a 2 bedroom and they need 3 or 4.  Or they really want some space and can't qualify for enough for a rural property that will go for a government loan.  This is the real world out there right now.  There are a lot of self employed people that can forget all about home ownership unless they can talk someone into an owner carry.  There are good reasons for stated income and no doc loans. 

Kathy: If they do not qualify, are they really "capable"? -- I would argue that many of the people who bought houses with sub-prime loans at 100% financing should not actually have purchased homes... especially the many who only could afford a reduced payment as with an ARM or Negative Amortization loan. While it is a nice feature of the American Dream that everyone could own their own home, it is a simple fact that not everyone actually can.

I dont think we are all blaming only the buyer, but alas, if the buyer has no downpayment, has high credit card debt or other debt, has little cash reserve, and earns just enough to make the payment on the mortgage but not much more, then either the house is too much for their means, o rhome ownership is not in the cards YET.

And when I say "Speculators" I am not refering to one home owners who live in their properties. Rather I mean the "investors" who bought many properties and over leveraged themselves.

It was a misleading dream to have everyone own their own home, or have them own or try ot purchase homes that are beyond their means. Not everyone drives around in a Farari. They may own a car, but it is one that is within their means to afford. Just because someone wants a 4 bedroom house does not mean that they can afford it. Too many people got into houses beyond their ability to afford... how is that a good thing?

There is blame to be levied.....It is against the powers to be who turned their heads knowing full and well fraud was involved.  It is against the Brokers whose top agents were knowingly cutting corners and the Brokers did not want to lose the revenue.

It is with the system that did not perform checks and balances to allow the manipulation of funds.

I totally disagree with you. This DID NOT have to happen. Appraisers were paid off, title employees were clearly getting kickbacks.  Developers were in the bed with many......Not to mention the Realtors who doing their best to work under the radar.....

Buyers who knowingly lied and stated they made $10,000 a month when they barely made $4000 a month need to be held accountable. Unless they had a gun held up to their head to force them to lie.

Many of us saw exactly where this was going several years ago and our pleas and concerns went unheard or should I say deliberately in many cases went unheard....

Now we cannot lament on the past but we should be committed to working together to see that this does not happen again and that accountability needs to be instituted with the proper checks and balances.

I am all for making money......I love it! But not at the expense of others demise.

Certainly no one group of people are to blame. As you put it..."everyone is to blame".

First, I look at the banks, the lending institutions who offered the loan products in the first place. Certainly, they are smart enough to have known some of the loan products were either risky, or they'd be utilized by high risk consumers.

Then, I think the mortgage lenders got very, very slap-happy and loose and dare I say "greedy" and pushed many people along through the process of obtaining more home than they truly could or should be buying. But again...they were only offering loan products provided to them from the banks....remember!

Next, you've got the American consumer living well beyond their means and buying more home than they can or should even be considering buying. "Me, me, me, mine, mine, mine, more, more, more". Bigger house, nicer car, more stuff...spend, spend spend! Completely irresponsible behavior from many consumers leaves most of the blame on them and only them!

If I go out and buy the most expensive Mercedes Benz on the market when I really can only afford a Honda Civic....who's to blame? Mercedes? The guy who financed the loan for the car? No! Me! I'm to blame! Nobody else but me!

I agree with you Paul 100%.  Everyone is the answer.  Everyone had a peice in it.  Although, none of it would have started without the loosening of the belt by the banks.  None of it would have happened.

I saw loans funded that had ZERO chance of floating.  What were these companies thinking?

Terry: Are you saying that all Realtors, loan officers, lenders, appraisers and banks have earned the blame? I would have to say that it would be more close to true if we acknowledge that there were some bad apples, but that the industry as a whole was not malicious.

But if you think they were, then why be in an industry that you feel is so corrupt?

Kirk: I agree with you... I know some folks who purchased a fancy house for $950,000, and could not afford to by shoes after that... they had two brand new high end cars (Jag, BMW) and could not afford to go out to dinner once a month. Just a bad idea, and worse. They are now divorced, and broke.

It would seem that the consumer "wanted" and all the professionals involved bent over backwards to help them get what the wanted. But as the old joke goes, just because you want does not mean you can get. "How does it feel to want?"

We are back to realistic mortgage scenarios, and the market reflects it... why is that bad? Becuase some people got hurt? I guess that is a sad thing, but wise and proper planning and judgemetn could have prevented most of it. In the end the guy who signed the papers is the one who had the last say, and they should have been more astute and done their due diligence. The rest of us should watch how greed clouds our professionalism and honesty... and make sure we dont do that... it will only harm our business in the long run.

I've said it before and I'll say it again, and again, and again......

It doesn't take a Wharton MBA with a fancy risk modeling algorithm to figure out that offering 100% financing to a W-2ed employee with a 620 credit score, no rental history and no reserves, on a stated-income basis is a recipe for disaster.... and the responsibility for this lies at the top of the food chain. 

It's probably easier to figure out than "don't let kids play with guns" or "smoking isn't good for you."

And we ALL are dealing with it.  In retrospect, the builders/developers had a hey day of a time.

I think it's interesting that mortgage people always use the same excuse. Well it was legal, they said we could. That is true and I can't argue it. I was a mortgage officer and regional manager for many years and I am fully aware of these products. But, the question isn't really about whether you could it was about whether you SHOULD.

Now I don't know you personally and I am not trying to attack your business, I am sure it's lovely.

However, I have seen the shady underbelly of the mortgage business since 1998, it began when I took my first job working for a finance company. Convincing people with good credit that they had made some mistake along the way and that they really deserved a rate that was higher. Never was it encouraged for us to send the customer outside of our department for a loan at a lower rate...even within the same bank. We were not to refer to other departments that could have provided a lower rate for a customer, even if it meant we would permanently lose the customer.

That's how greedy everyone has been and I hope they saved their pennies.

Never focus too much on whether you can or could do something.

Pay more attention to whether you should.

Tiffany, I am sure you are not attacking my business, as we are fully legitimate and ethical people here. Personally I only own a mortgage and real estate company, and actually am an attorney, and all our loan officers and real estate agents are taught to look out for the best interest of their clients, and I believe they all do this... if not, and we find out, we have to much at risk to allow it to continue unchecked.

But in the end, it is a business that you worked for when you were on the finance side, yes? They had customers whom they wanted to satisfy, yes? And importnatly, they wanted to make money at it, yes? Perhaps compensation plans should be altered to promote more ethical practices. Perhaps all loan originators and Realtors should be put on salary, and not benefit from "upgrading" the house or gaining points on a loan.

We have heard tell of many examples of bad lending practices. There are some up top on this page in the comments. When people are paid for volume, and want rapid repeat business (as with LOs placing short term ARMs only to refinance the person in a year or two) to increase the repetitive clients rate of business, it is hard to see a way to make them do what is "right" when they will make less money if they do it that way.

Perhaps we should open a discussion about how compensation plans can be used to aid in better, more ethical practices.

Some excellent points made here.  It's key to remember that although some people made bad decisions and lost money, others made smart decisions and made money.  Like the bubbles that preceded this one, it's the folks who arrived late to the party that end up holding the tab.  That's the way it works.

I don't know if more regulation is the answer, because by the time the politicians figure out how to solve the problem the crooks will have already moved on to the next scheme, whether they work on Wall St. or Main St.

I believe that professional standards, ethics, licensing, and training are the only way to weed out the bad apples.

Paul

Nicely done.  I've touted what you said for quite some time now.......and no I am not trying to boast.

Everyone as you said had a hand in it.  Kirk above, did hit a nerve when he mentioned lack of regulation. Although he is correct to a degree, some of the regulations that were created also played a tremendeous role.

Specifically, in 1996 when then HUD Secretary Cuomo instituted RESPA changes to Section 8, whereby legal establishment of " Controlled" later changed to "Affiliated Business Arrangements" were established.

Rather than a bundling of services to reduce costs, it created cash cows for some where the consumer never really saw a true benefit, and in many cases worse. HUD, Congress, and the Senate all approved this.

Now they are at it again while merely pandering to public pressure.

After 38 years of banking, mortgage banking, and brokerage, I now see a market in such disarray that no one knows which way is up.  Moreso, we now see a complete kneejerk reaction to the opposite end of the spectrum where both buyers and lenders have to deal with constant guideline changes.  Now the political solution is to push for even more disclosure.

This disclosure will only be applicable to mortgage brokers with banks and other direct lenders having no requirement for full disclosure since they are funding the loan.  All with the blessing of our so called Politicians with special interest lobbyists steering the way.

Go Figure !

We need need to quit trying to "blame" someone on the current housing situation and look at ourselves. I think our society is too quick to blame someone else for our woes instead of taking responsiblity for our actions. There were many shady things going on in the market to get people into homes that they could not afford but in the end I do not recall hearing of any buyers sitting at a closing table with a gun to their head. The real estate speculation of the past few years is just like every other "get rich scheme" that has reared it's ugly head. 

Bottom line is that there are no short cuts to making money and it's very risky to try to time the market for any type of speculation. Real Estate will continue to be a good investment for those with a long term strategy. And remember, you make money when you buy not necessarily when you sell.

I love how so many want to blame everyone but the people that signed loans...  I have had to take too many calls from people that saw the prospect of easy money, and took it... and now they don't know how to correct the mistake that they made.  And the entities that are losing the most money are the big boys...

Plenty to go around, and there aren't many that aren't to blame.

Greed of the investors is the #1 source of blame.  Realtors and loan officer, for the most part, got what their clients wanted.  Subprime portfolios had such a great return on investment with virtually no credit risk because home owners in trouble could sell so easily....so more junk products were released and we are now in quite a bind....

Paul, truth be known, I don't think any of us are completely without blame. I don't know a single Realtor that stood up to their first time buyers and proclaimed..."you are padding your loan too much! You are paying too much interest, paying me, paying the mortgage broker and the bank shouldn't charge you so much interest!

Do you?

So, who is to blame? The Realtor that didn't stand up and say "wait", the people who signed on the bottom line knowing they were spreading themselves too thin, the banks that charged way too much interest in the beginning or the banks that placed the poor unsuspecting souls on an ARM or the Mortgage Broker who hid their fees amongst the Title Companie's fees???

Later in the rain~Deb

Paul, good post.  Now we, everyone, has to fix the problem.  AJ

No where in my response did I say all banks and all realtors were responsible. What I did say is that the powers to be in various places turned their backs and allowed activity to go on they knew was wrong but played dumb because they were interested in the almighty dollar instead of doing the right thing.

I also stated that some buyers KNEW exactly what they were doing.

I firmly believe if we had better checks and balances and/or if the checks and balances in place had been utilized we would not have seen to the extent the damage we are facing right now.

I had mortgage officers from various lenders on more than one occasion have the buyer contact me to request the seller increase the price to $50000 or more and in one case $100000 and to put it on an addendum that would NOT be turned into the bank that shows after the close of escrow the seller would write out a separate check from their own funds directly to the buyer for the $50000 or $100000. NO i did not comply nor did I entertain doing such.

I remember one buyer who became very angry at me to do such so I went to his business, had him call his loan officer right there so we could do a three way conversation and his loan officer completely denied telling the buyer such.....If you could have seen the buyers face........

I had another loan officer argue with me as long as they were not aware of what I was doing there was no problem......of course my response was "of course you don't care your name is not on it my name would be and it is NOT going to happen.." Either provide the buyer with a loan that is suited for them or tell the buyer he or she or both are not qualified for this purchase price and we will pull out of escrow if needed.

I can only speak of what I saw happening in the Bay Area in California.....I remember a year ago an Appraiser getting nabbed for sending pictures of a like model house that was in pristeen condition to replace the pictures on a house that was a major fixer in order for the home to appraise....somehow the underwriter (who was local)picked up something was wrong and physically went to the home that was for sale and called the appraiser on it.......

Most of the Appraisers I have known were honest hardworking people. I remember several stating they had "lost " business because they would not lower their standards and fudge on their reports and findings. Many had indicated a lot of pressure from Realtors and/or the loan officers to appraise a home far above its value.

You can sugar coat all you want. There was more than just a few bad apples, at least here in the Bay ARea and there was collusion among various Brokers, Realtors, Appraisers, Title officers and Developers.....NO not all......but there was certainly a network of sorts. The bottom line people need to be held accountable for their actions.

It has become such a favorite motto in America the Devil made me do it..... or my favorite everyone else is doing it.....

As far as the loans go, the sub prime loan in itself was not bad. It was not intended for long term. It did allow for those to get into homes they otherwise would not be able to afford. As a notary I saw individuals coming in every 6 months refinancing and continue to pull equity out as the market at that time kept increasing. I kept saying to myself what are they doing? Especially when it was not used for capital improvement.

Now, the lenders checks and balances obviously did not work or they would not have allowed some of these loans to go thru.....

I have asked myself the question why do I stay in real estate? Because I love helping people realize their real estate dreams and I know there are others committed just the same as I and if we all band together we can change the industry for the better......

There is such joy seeing the faces of a first time home buyer giving them the keys to thier first home.

I stay in real estate because I have a lot to offer my clients in terms of service, negotiating skills and knowledge.

I stay in real estate because I love the challenge to conquer the various issues that arise and the satisfaction of doing such.

I stay in real estate because of my physical issues allowing me to structure my hours as necessary.

Every field or profession has its jerks , bad apples and scum including attorneys, physicians(I worked in the medical field for 30 yrs) police and god forbid our government.

I could go on for hours things that happened in the medical field and the turning of backs on colleagues who came in drunk to do invasive procedures that resulted in maimed bodies, missed diagnosis  or the actual loss of life....however I won't. But I can tell you it was because of the "Good Ole Boys" club that spurred this....I have seen the exact similarity of such in real estate. This is what triggers my reaction. Our society needs to step back and stop enabling destructive behaviours.

What I get angry about is the turning of heads and pretending nothing is seen or going on.

What I get angry about is the total disregard for the rules and checks and balances because somebody knows somebody who knows somebody and will pull strings or favors to look the other way.

Just for the record-I never encouraged any of my buyers to get caught up in the bidding wars....I gave them the comps....told them what has been happening in terms of multiple offers ....and to make their decisions based on their comfort level and ability to pay the mortgage and their long term real estate goals. In fact we had disclosures in regards to such.

If they chose to go the  route of getting caught up in multiple and offers and over bids it was entirely their choice.

 After stating this, there is some hell of real estate deals out there for a qualified buyer. This is a great time to purchase real estate. Yes it is a beautiful day in California.

Well... I suppose Terry said it all right there... not sure what eactly is in disagreement with what I and other havbe said, but it is there, none the less. Yes, Realtors pressured appraisers and loan officers pressured appraisers and etc etc etc. but not all. and the point is that this was mostly done with the buyers' instigation.

And now many of them are losing their houses. And then some.

Tough out there in the real world.

And not so honest and ethical as we might hope.

Go figure.

Wayne, I have to agree with you... more regulation may not help anmd might worsen the problem... no one is saying that the "bad apples" should not be held accountable, but there are always unintended consequences in regulatory acts, and we have witnessed and are living with some right now.

To "mortgage broker",

You wrote:

"Kirk above, did hit a nerve when he mentioned lack of regulation."

Oversight does not necessarily mean more regulation in fact we have enough regulation that could cover the universe in trees and in the end it does not cure stupid or bad behavior. My point was if the goofballs in DC were paying attention they could have injected "influence" and pressure to force Wall Street to institute change on their own without regulation which is often done from the FED on down.

You wrote:

"Specifically, in 1996 when then HUD Secretary Cuomo instituted RESPA changes to Section 8, whereby legal establishment of " Controlled" later changed to "Affiliated Business Arrangements" were established."

I am very glad you brought up the ultimate self-promoter and current AG of NY Cuomo who is currently extorting money from FNMA/FHLMC and chasing after appraisers accusing them of bringing down the market. As you noted he signed into law builders could have their own mortgage companies and real estate companies...now isn't that rich? Look at the five states with the highest foreclosure rate and you may find those builders!

That's where (if you're going to have more regulation action) the focus should be along with the kids on Wall Street.

My 2nd response was due to your response to me below from my initial response to your blog---

"Terry: Are you saying that all Realtors, loan officers, lenders, appraisers and banks have earned the blame? I would have to say that it would be more close to true if we acknowledge that there were some bad apples, but that the industry as a whole was not malicious.

 But if you think they were, then why be in an industry that you feel is so corrupt?"

_________________________________________________

Yes, Terry, I am aware of that... thanks for the comments.

I have two homes with interest only loans, I found it far easier and cheaper ($500 each) to "re-set" the loans as oppossed to refinancing them. I merely called the lenders loan retention department, said I was going to refi with another lender to get a lower rate, and they gladly re-set the loans at a very attractive interest rate. No closing fee's, no lengthy docs, just a $500 payment for each loan ever the phone. Fortunatley, my LTV's are high, and my payment history solid.

Michael: I agree that not every instance of adjustable rate mortgages are bad or detrimental to the homeowner. It is when the property depreciates, or the LTV is too high, that issues start happening. Thanks for your advice here though... in these times where lenders are game for the resetting process, that is a good alternative.

Thanks for the comments, all.

Again, I want to thank all of you for all of your comments.