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The Who's to Blame Game

By
Property Manager with PropertyADVANTAGE CA BRE # 01450265

This is a long overdue blog post, but here goes. I am TIRED of the blame game as it relates to our current mortgage and real estate market. Not a day goes by that I don't read or hear about how it's all the mortgage brokers fault for the current state of the mortgage market, because people were placed into bad loans.

Let me try to explain how this whole process started in the mortgage market:

Wall Street investors were all looking for higher rates of return in the financial markets. So they basically told mortgage bankers to "create new products" and we'll buy them. Of course this all sounded great to the mortgage bankers, and thus was born all of the "exotic" loan programs available to anyone with a pulse. Consumers got greedy for homes they couldn't afford, mortgage banks became too lax in their guidelines and the Wall Street investors, greedy for higher returns, financed the whole thing. When the loans began to go into default, Wall Street investors decided to pull the plug and stopped buying these risky loans from the mortgage banks. They even required banks to buy back the loans they had sold to them in the first place! So instead of new money being provided, Wall Street started to take money BACK from the banks. This was further exacerbated when Warehouse Lenders (who were providing interim financing) created a run on the mortgage banks, by closing down their lines and calling their loans due. This is what has lead us to the market we are in now.

So who is to blame?

Was it the investors hungry for bigger rates of retrun? The mortgage banks/lenders hungry for loans to supply the even hungrier investor appetite for higher yields? Perhaps it's the Mortgage Originator selling producs that didn't make sense just because they could? And lastly, what about the buying public, eager to own their first home or to move into a bigger one, knowing FULL well they couldn't afford it, but who weren't too concerned about the "details" as long as they got what they wanted (instant gratification)?

In my opinion this mess has many layers and to lay blame on just one group of individuals is irresponsible. Let's put it this way, if there were no exotic loan programs created because someone decided they wanted MORE money, then loan originators would not have had those to sell. With that being said, understand that I have a SERIOUS issue with the slimey so called "loan originators" who took advantage of the situation and did indeed put people into loans and or homes they most definately KNEW the client couldn't afford  just to make a buck. But I also have a serious problem with the buying public who have taken absolutely NO personal responsibility for their own actions. I know of many upstanding loan originators who did it the right way by advising people that they weren't ready or were unable to afford a purchase, only to have that client walk out of the door and into the waiting arms of the "unprofessional" originator all too eager to take the loan application and run - with a hefty commission to boot!

One of my all time favorite lines is from the movie Jurassic Park and I think it applies to this situation quite well.

"You were so busy trying to figure out how you could, you never stopped to think if you should"  Which to me means just because we CAN do something doesn't mean we SHOULD, especially when the full reprecussions  of our actions have not been fcompletely explored.

 

 

 

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Chul KIM McGuire
CorpusTV.com - Corpus Christi, TX

I believe it's a combination of Mortgage Companies' advertising the heck out of "No money down, get a $400,000 loan and pay only $795 per month," Realtors not being knowledgeable/or consciousness to WARN Buyers, and Buyers themselves for not becoming knowledgeable about the What If's and Oh Sh**.

I've never recommended that my clients take a potentially risky loan that's not suited for them. If they want my help with the type of lender or loan, then I always recommend that they get a fixed rate. And I NEVER try to sell them a house that maximizes what they can afford. I always remind that there's always Life's Emergencies that can hit the fan, so stay within means and DON'T USE CREDIT CARDS!

That's my $1.01 worth of comments. ($0.02 cents with inflation factor calculated, plus Federal LOL tax, State Give me a Break Tax, and Local Tax to pocket good 'ole boys.)

Finger Pointing is a Way of Life in Democracy. In some other countries, they point guns and say... "Ooooops" don't cut it buddy!

  

Oct 10, 2007 11:32 AM
Scott Daniels Florida Real Estate 2.0. Agents Earn 100% Commission.
Florida List For Less Realty, Inc. Broker/Owner. - Cooper City, FL
Sadly, it`s not a matter of blame as much as it is greed...
Oct 10, 2007 11:36 AM
"The Lovely Wife" The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Well...

I think everyone involved in this fiasco played a role.

Sorry...It's just my opinion :)

TLW...ROAR!

Oct 10, 2007 11:50 AM
Terry Day
Mountain View Mortgage - Las Vegas, NV
Here in Vegas the main problem is the RE speculator. 75%-80% of the foreclosures out here are non-owner occupied. The prime to non-prime ratio is 3 to 1. I have had 3 "deals" come across my desk in the last 2 weeks that were out of state "investors" who bought properties they couldn't afford with 80/20 loans, using no income verificationand very likely no asset verification. They went with section 8 renters (keep in mind these properties are $350k+) so the most they were collecting was $1200 a month, which couldn't even pay the teaser rate payment, let alone the fully indexed rate payment. Of course none of this would be possible if the loan product wasn't there to sell, and there weren't people to sell it. Ironically, people are still pushing these RE investor seminar schemes. I met with a realtor a couple months ago who tried to get me to quit originating loans and just hunt up leads for his investor group. Their target market was the Florida condo market, of all things. Some people just don't learn.
Oct 10, 2007 04:18 PM
Micki OToole
PropertyADVANTAGE - Carlsbad, CA
General Manager

C, Kim, thank you for your comment.  I appreciate your $1.01 worth! I agree that advertising was more often than not misleading, as I often had callers asking about the 1% interest rate. Once the program was explained and how it truly worked, most people said never mind- which I would agree with.  The fact of the matter is that many times people want something that's too good to be true and ignore the warning signs no matter how hard you try to educate them. I've seen it happen too many times.

Each client is individual and there is no one size fits all solutiion (not even a fixed rate is always the best option) for everyone. People need to get educated!

And yes I realize that in a democratic society there will always be finger pointing (just look at our politicians!- LOL) And I most certainly would prefer it to the alternative.

Have a great night!

Oct 10, 2007 05:23 PM
Micki OToole
PropertyADVANTAGE - Carlsbad, CA
General Manager
Scott, yes you are completely and totally correct. Greed, Greed and more Greed! Sadly, it's usually the guys with the deep pockets and high priced lawyers that get off scott free no matter what the wreckage they leave behind. I don't know how some people sleep at night!
Oct 10, 2007 05:26 PM
Micki OToole
PropertyADVANTAGE - Carlsbad, CA
General Manager

Lovely wife, don't be sorry, you are right. I just wanted to point out that not all of those in the industry played fairly, and have left those at the bottom holding the bag, while they're reaping the rewards of their ill gotten gain....

Thanks for the comment and have a great evening in beautiful Florida!

Oct 10, 2007 05:30 PM
Micki OToole
PropertyADVANTAGE - Carlsbad, CA
General Manager

Terry, THANK YOU for your comment! That's one piece of the pie that really needs to be examined. Here in California just as prices started to escalate through the roof, investors started buying up these new developments in the hopes of turning quick profit. Many did, but alas many did not, having bought at the top of the market. I would LOVE to see some hard numbers showing how many foreclosures are actually from investors. It would make for some interesting reading....

Again, no one entity is soley responsible, but the availability of ridiculous loan products, coupled with greed and lack of accountability have created this monster.

Have a great night Terry!

Oct 10, 2007 05:36 PM
Nancy Moeller
Seven Gables Real Estate - Anaheim Hills, CA
Micki, another insightful and honest post. I agree that the blame goes to the greedy. Excellent point about the "should" vs. "could". There are many areas in our industry that we should be asking "should we?" instead of "can we?". Unfortunately, the policing usually happens when the first domino falls.
Oct 11, 2007 11:35 PM