Subprime Borrowers: Not Innocents

Consumers who took out adjustable-rate home loans they now can’t repay are primarily to blame for the subprime mortgage crisis. Pro or con?

Pro: Willing Customers

A simple look at the blunt reality reveals that borrowers themselves should assume primary responsibility for the current subprime crisis. Millions of borrowers, all over the country, knowingly signed mortgage contracts they cannot now afford to honor.

Provided that lenders did not engage in force or fraud—and there’s no particular evidence they did so on a large scale—borrowers should do whatever they can to live up to the contracts they signed. The policies of lenders and government certainly helped the current crisis develop—but ultimately, do not absolve borrowers of responsibility for their debts.

And in most cases, the mortgage lenders not only are innocent of the predatory practices borrowers complain about but also are feeling the pain right along with them. These lenders do not revel in the current circumstances. A lender typically loses about a third of its loan value through foreclosure; thus, no lender (or mortgage-backed securities marketer) has an incentive to make or purchase a loan it genuinely believes a borrower cannot pay.

With a very few exceptions, lenders have no desire to serve as landlords or take away people’s homes: A foreclosure causes almost as many problems for the lender as it does for the borrower. True predatory lenders, who engage in fraud or make loans they know borrowers cannot pay, inevitably end up in either jails or unemployment lines.

The government played some role in the crisis as well. Its tax system encouraged Americans to take out very large mortgages to get out of paying federal income tax. And the government’s 2005 bankruptcy reforms meant that rather than having their debts wiped clean, most middle-class Americans who file for bankruptcy have to set up five-year payment plans with creditors.

Not one of these factors, of course, mitigates the facts of the situation. Mortgage borrowers who signed legally binding contracts should have to honor those contracts, or at minimum, renegotiate terms with their lenders. Any suggestion that borrowers should avoid responsibility would undermine the fundamental principles of contract law that lie at the base of any modern capitalist economy.

Con: Collaborative Fiasco

Yes, a few borrowers bear some blame for subprime problems, although not for the whole crisis. These few are the crooks, the ones who falsified their financial statements and obtained loans fraudulently. They should be prosecuted. More numerous are the mortgage salespeople and real-estate brokers who both misled borrowers and falsified the applications to get mortgages the borrowers could not repay. They also should be prosecuted.

The subprime “crisis,” though, is much bigger and more complex. Most subprime borrowers applied for and got mortgages they thought would benefit them. They bought houses they otherwise could not have afforded. They expected that house prices would continue to increase, allowing them to refinance their mortgages or sell the property at a profit. Many guessed wrong, and they and the investors who ultimately provided the funds for the mortgages will take losses rather than gains. These borrowers are not responsible for the crisis. They just took advantage of opportunities offered to better their lives and finances.

Who, then, is responsible? Well, no one—and everyone. The mortgage salespeople and real-estate brokers received commissions. They benefited. But they are not responsible for the crisis; they (the honest ones) just did what people who sell cars or TVs do—sell the product. Indeed, the interest and repayment terms of mortgages must, by law, be clearly stated. It is the present and future value of the house that is hard to estimate. The initial lenders who securitized the mortgages benefited, which does not make them guilty of causing the whole crisis. The agencies that gave the securitizations too-high ratings were responsible, but (at least in retrospect) investors should have been more skeptical. Because investors were not sufficiently cautious, they have taken and—as the crisis unwinds—will continue to take losses. They are not responsible for the crisis; rather, they are the victims of less-than-competent risk managers.

Although borrowers are not responsible for the subprime mortgage crisis, neither are they its victims. They just gambled and lost. Hence, they should not be bailed out by taxpayers. Investors (or their agents, the mortgage servicers) may restructure their mortgages rather than foreclose. They will take a hit as will the many others who contributed to—but didn’t solely cause—the subprime mortgage crisis.

Opinions and conclusions expressed in the BusinessWeek.com Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

MandBinc

The American dream is not to have a house, 2.5 kids, and a three-car garage. It is to take $10 and turn it into $1 million.

Come the new year, all those people who cannot meet their current mortgage payments will be hearing from the local property taxman. They can't even pray for a disaster as they most likely didn't pay their insurance premiums either.

George Kumazawa

I didn't see anyone making money trying to give back part of the profits. They weren't forced to sign and buy larger homes, expecting larger profits.

Like my dad used to say: "Bulls make money. Bears make money. But pigs gets slaughtered."

TheQuant

I have to go with the con side of the issue. It is purely an American trait to sign on to a house mortgage and hope for the best.

The people making the big dollars, who need to enforce prudent underwriting standards, should take the hit. After all, they made big money on transactions and should bear the downside if it comes to pass. That's called business and investing. Too bad.

paula lowe

I actually take both sides of the issue. I have been a mortgage lender for 26 years, and clearly there have been clients over the years who gave the old head nod without truly understanding the loan product regardless of how many times we went over it.

The clients can read each document and have numerous conversations with the mortgage lender and still not understand what they have signed. Many of these people are college educated.

I believe there are people who committed fraud knowingly and others who were truly victimized. Still others face changes in their employment or family status that caused them to slip. I also believe that there are still others who simply no longer want the home (yet can afford to pay for it) and walk away. Sellers in the market may be willing to put their credit at risk to move on. They only need to wait a few years for their credit to recover. With little equity and little chance of selling in this market for any measurable profit, simply buy the home you want and let the other one go back to the bank. You can easily cry "foul." Look around--everyone else is doing it.

TKP

I understand the points made by both sides. I would suggest a thorough examination of loans made that are now in default. If the loan happens to be a "no documentation" loan or a loan that has the correct documentation with not enough income, yet issued, then in these two cases the lenders are guilty. If the borrower himself or herself falsified the documents to get the loan, then he or she is the guilty party. Of course, with the number of loans in question and amount of paperwork to be examined, this is not a feasible process.

Mark

The truth lies in the middle. First and foremost, lenders relied too heavily on FICO scoring and not the ability of the borrower to repay. The willingness to accept stated income and no-doc loans was driven by greed on the part of the lenders, who often sold these loans onto someone else. Also, allowing little or no down payment from the borrower encouraged speculators. A larger down payment discourages people from defaulting on loans and allows for easier refinancing.

That all said, the borrower is equally at fault for not doing due diligence on the mortgage. I suspect many assumed that if a lender was prepared to lend the money, that meant they were able to repay. If they did their homework and reviewed their household budget, many probably would have found that they were financially stretched. Many focused on the initial monthly payment and not the later payments (ignorance is no excuse). Many probably acted impulsively, worried that they might miss out on a house when prices were rising and multiple bids were prevalent. Finally, they were probably encouraged by the lender that they could refinance in a year or two to a fixed-rate mortgage. In which case they took that risk in the belief that prices would continue to rise and lost that bet. Irrational exuberance all around.

Prashant

I think we should point the finger at pay.

When Countrywide paid more commission on ARM mortgages than regular mortgages, it was to blame.

When the analyst at Moody's was paid to say that the mortgage was AAA, the company securitizing was to blame, because they threatened to take the business to someone less scrupulous.

When the broker was paid a higher commission to sell this security to his client than to look after his client's money, the brokerage house was to blame.

Everything is related to pay. Like Warren Buffet said, set the pay structure correctly and you will get the right result.

wei J

Not a single one innocent party is in this mess. First, my personal experience in California testifies that the lender, appraiser, and other parties in the financial industry are guilty of aiding or abetting the fraud in subprime finance. Just a simple rollback local TV commercials and a review of local newspaper ads will clearly tell the world that these guys were guilty of today's fiasco. I recall a local appraiser institute produced appraisers virtually overnight. Second, these debtors clearly knew what they were doing then. Most of the people I know were clearly playing the market and disregarding the risk. Many people in San Jose in my neighborhood were buying property like crazy for speculation. Now they are crying for sympathy for being victims. It would be ridiculous for the Fed to bail these parties out for the future well-being of the U.S. housing market. It's one thing to be sympathetic to them, and totally another to help those who consciously dug the pit for their own. Let them fail, and the U.S. won't collapse; in return we will get a healthy market and more rational financial industry.

Holly Garfield

The borrowers are part of the blame, but not the majority of the blame. The borrower is not a finance professional, and relies on the lender to make a loan that can be repaid. The lending policy-setters have the bulk of the blame for failed mortgages. But it does not stop there. Financial investors, lender loan packagers, creators of CDOs and SIVs, and investment resellers and buyers are the most to blame. Home builders who over-saturated the market have a share of the blame, too. The mess was not created by subprime borrowing. This was the initial step, but not a critical step.

Loan managers can see that the home price to income ratio was creating a bubble. The home builders creating an oversupply increased the bubble. This all publicly posted government information that loan policy-makers can readily see. They should have curtailed mortgage requirements back in 2005-06. Home builders should have known that they were creating a supply that could not sustain the price at the available demand.

The loan packaging tied a large amount of non-subprime loans to the sub-prime market. This created a situation in which these vehicles ended up with a risk level that was about the subprime risk, not the advertised risk. The rating agencies gave a rating of risk level that was actually better than the risk level of the best loans, a mathematical impossibility. Investors did not question the rating agency assessment even though it was impossible. Reselling created a paper path that was too long to follow to properly assess risk, yet investors bought anyway.

Everyone but the original home buyer is supposed to be an experienced professional. The errors made by these professionals were at the high school economics level. Combining risk under the circumstances is early statistics training.

Every complex problem has a solution that is simple, obvious, and wrong. This is a complex situation, and correcting it will not be simple or easy. These investment vehicles will need to be unwound so that they can be properly assessed, and the good loans can be decoupled from the bad ones. Most of all, investors that should have taken a closer look at the vehicles before buying will need to accept the losses they assumed in the purchase. Lenders will need to reassess loan acceptance standards, and also keep making the loans that are not defaulting. Failing to make good loans is as dangerous as making bad loans.

m

Seriously, if you buy in banking on a profit, you deserve to lose. And if you let the bank tell you what you can afford based on a formula, then you deserve to be taken. Budget, and figure out what you can afford, in good times and bad, and then go shopping for what you can afford. Otherwise, buyers deserve to be taking the hit.

Novista

Subprime slice of total mortgage market:
2002 - 08.3%
2003 - 12.0%
2006 - 20.0%

It's hard to imagine that minority slice of the American pie could cause a worldwide credit crisis, eh?

To the smug individuals who know they're smarter than the average bear and those "greedy, or ignorant, or speculators deserve to lose" you might check where your money market fund or pension fund provider really has the investments made.

Aside from subprime, who knows how many responsible and sensible borrowers hit a snag called major medical problem or the one labeled "You no longer have a job."

Sure there's plenty of guilt to go around. Even Fannie and Freddie got caught with their paws in the toxic cookie jar--GSEs that should have known better.

Maybe the biggest flaw of all was the ratings firms--it is just so much easier to help set up a creative investment vehicle, take the fee, and assign the AAA gold seal of approval. And that misled anyone down the food chain. Just ask the people involved with the Florida state investment fund.

As far as no evidence of any wrongdoing, well, we shall see. There were half a dozen mortgage outfits being investigated for outright fraud. Smoke, fire? And Countrywide's Mozilo has the SEC on his back--and that mob still somehow had a $51.1 Billion bailout in September. Hmm...

I'm afraid, in the long run, if there is actually a significant trickle-down to borrowers, it will do more harm than good. I strongly doubt most will be in better financial shape later on.

But I could be wrong. Maybe the short-term answer is an easy one: one application, one mortgage adjustment now. This winnows out the speculators right away. I would say let the banks take the hit of foreclosure expense and loss--thing is, so many mortgage were sold, and now no one really knows who holds what.

And do reflect on the fact that "asset securitization" was brought to you by those wonderful folks at the Department of Housing and Urban Development in 1970.

Have a good day.

Holly Garfield

Interesting point, Novista, on the subprime percentage. By 2006 the housing prices had risen to a point where they were so big a part of disposable income that price increases were clearly unsustainable. Housing starts were at a record pace. Both these statistics are easily followed and indicate immediate downward pressure on pricing. So where did the money for all of these subprime loans come from? By this point, any rate reset would be after the bubble burst, so the lenders should not be making that amount of money available on the high-risk market.

I also suspect that these same lenders massaged CDOs to sell the subprimes at a profitable price by putting them in with lower risk loans. Without CDOs, the loans might not be sellable in a subprime only package by that point. The CDO buyers should have checked the risk levels better before buying. Without these two steps, the subprime and housing bubble are big pests, but not nearly the damage we are seeing.

Airline accident reconstruction looks at the whole series of events leading to a crash. Stopping any one of the events will stop the accident, so the accident investigators look to stop the first step that can be avoided. That is where the solution lies. Here the increase in loan financing when a price bubble was imminent and the combining multiple-risk loans are the first steps in the current credit problems that can be stopped. Consumers will always ask for more home than they can buy; we can't stop that. Lenders can stop making the money available and can stop bundling multiple-risk loans. Packaging same-risk loans, then selling multiple packages to investors is the proper way to diversify risk.

Pete

Since doubling up is the traditional solution to high-priced housing, perhaps those who lied to get loans should be required to take in poor people as low-rent roomers. That way they could keep their houses and protect their credit, more of the loans would be repaid, and struggling people would have a temporary sanctuary--maybe even complete with Jacuzzis.

andrew

The most valuable words to Americans are "I own." But I have always thought the words "I owe" was a more accurate description. With a flood of subprime news in the last few months, apparently the most correct answer is "I owe too much."

Greed is the greatest common denominator here (as in most problems related to money), and I believe there's enough of it to spread around. From a macro view without regard to defaults and housing prices:

The good news is that there are now more newer homes for Americans to live in. The bad news is that housing is oversupplied. In the past few years, America focused too many of its precious resources on a (super) durable good and too little on other needs (can anyone say "education," "health care," or even "new bridges"?). Now, there is an oversupply of homes that will last another four to five years.

The result is that America will be forced to save more and sell some of our assets (companies and real estate) to foreign debt holders (a.k.a. margin call). In other words, the growth in American standard of living is going to slow down for quite a few years.

Steve H

Among those being labeled as liable for the subprime debacle, I've not seen any mention of regulators and legislators. If this fiasco is anything like the S&L disaster, we will discover that federal regulators and legislators (states too) had ample opportunity to reign in potential abuses but decided not to. Even now as we see the consequences of what happens when nonbank lenders are unregulated, Congress has cut out from legislation any attempt to end mortgage brokers from rewarding their employees for pushing borrowers into rates higher than they qualify for. Such premium spreads are an obvious abuse that illustrates brokers placing their own interests ahead of their clients', again something that remains legal. I wonder who will be among this generation's "Keating Five"?

Karriem K.

I guess we all know that the lenders changed the rules to allow more people to buy homes. They decided not to accept income verification and put terms together for people with low incomes banking on the economy giving them a raise more then 5%. What percentage of the population receives a huge raise? Probably not many in the last two to five years. That is why when the mortgage adjusted, the people's income could not handle it.

The lender is more responsible to blame, then the appraiser, borrower, and government for no oversight.

beedi

I'm looking at this micro- and macro-economically.

Micro: The home buyer was looking to make a quick buck by buying something he couldn't afford, because he presumed the market would appreciate more than his ability to pay. Anyone with an IQ of at least 75 knows that if he can't afford to buy something, he needs to pay it in installments, but if he can't even afford the installments, he needs to wait. But did that happen?

Macro: The financial institution looking to make a quick buck by creating an SIV it couldn't afford because it presumed the market would appreciate more than its ability to pay. Any financial institution with a collective IQ of at least 75 knows that if it can't afford to buy something, it creates it by leveraging a solid asset, but if it can't even gauge the value of the asset, it needs to wait. But did that happen?

Joe A

Are consumers responsible for the subprime mortgage crisis? No. At most, the individual consumer is responsible for the loan that he or she took out. But the crisis is broader than the impact that the loan failures are having on the parties directly involved. The crisis also includes the effects that the loan failures are having on the overall economy and on the financial system. It is not the responsibility of the individual consumer to be concerned with these issues--it is the responsibility of banking regulators. Purely for the sake of preventing a potential meltdown that would affect almost everyone, regulators should have prevented the questionable loans from being issued.

Nhappy

Borrowers, under their own free will, took out ARMs. Shame on them for not understanding their budgets, the loan terms, risks, and assuming (you know what happens when you "assume") that the market prices would continue to rise.

Lenders did not hold guns to buyers' heads.

ercook

To blame the small fish for a big-fish problem is risky business. Only the ones who take the bait are caught.

HHBear

At the end of every mortgage contract, just above the signature line, is a line that goes something like, "I have read the contract I am signing and agree to be bound by it."

That is the bedrock of contract law and our entire economy. Without the ability to enforce the contract as written, no lender would lend.

Do we now throw out our entire economic system because some borrowers were too cheap to hire a lawyer for a couple of thousand dollars and willy-nilly signed papers worth hundreds of thousands of dollars?

gettingshafted

At the time, it was like an orgy; everybody was doing it. How did I know that two years or so later, I would contract those full-blown nasty diseases?

tom weimer

The borrower vs. lender subprime debate is a complex question. But having worked for a large subprime lender, I can tell you that it is all about pumping out loans for fees. There was an utter disregard for solid underwriting practices. I was having a discussion with our CEO one day and we were discussing a first payment defaulted loan. The CEO said to me, "Before we refinanced him, his debt-to-income ratio was 110% and now it is a much lower 76%." I asked the CEO, "What difference does it make if they are 110 feet under water or a much better 76 feet under water? Is there any more oxygen?" He had no answer.

eric

Wow, I've learned so much just reading this forum. I live in Los Angeles, one of the hot spots in this crisis, and I'm seeing the results already. Angelenos are starting to lose their $500,000 lofts. It's threatening to destroy a lot of lives and possibly damage an already fragile economy. We've been marveling at how quickly and how high home prices have gone in the past two or three years. Although I was tempted to buy last year, I decided to hold out until after the bubble burst. That seems like a smart move in hindsight, because now it looks as though I might get one of those $500,000 lofts for considerably less.

The buyers had to know they couldn't afford their homes, so although I'm usually on the side of the little guy, I have to say I blame the buyers for signing their names to loans they knew deep inside they simply would not be able to afford if their situation (or their interest rates) changed. I say no government bailouts for anyone.

Chris in Kansas

I feel that the blame should be 50/50.

It seems that the buyer was too quick to buy the home. They did not do enough research into the market to see if the house would appreciate as they expected. I think that most subprimes were in a hurry to get on the bandwagon and didn't do enough checking.

On the other hand, lenders should have done a better job of underwriting. Approving a loan based on a credit score with no research into the true financial situation of the borrower is stupid. What would they expect to happen if they lent money to individuals who could not repay it after the ARM adjusted?

Remember, no one drop of water thinks it is to blame for the flood.

Dan in Boston

I feel that (as unfortunate as some unique circumstances may be), the blame stands with the borrowers--the willing customers of the subprime mortgage market, and, let's not forget, even the conventional loan market, as we're likely to see in the near future.

Home ownership is widely accepted as the American dream, yet few acknowledge another American traditional moral value: personal responsibility. When every single mortgage contract, including so-called-subprime, contains the (yes, often fine) print regarding the responsibilities of the borrower, and the loan terms upon rate adjustment--again, if the case--then the borrower confirms the ability and commitment to repay the lender on the mutually agreed upon terms. If not met--it's easy, as the contract says--the property goes back on the market one way or the other.

I myself live in a higher-than-average housing market, and for the past three years have been saving with my now-fiancée for a down payment on a house that we would eventually raise children in, budgeting everything, and not taking vacations (not even to visit our parents), only to realize day after day that the average single-family or why not two-family home prices have gone up yet another 3% to 5% from only the previous month. I can only make an educated assumption that the prices have been rising due to the demand of unqualified borrowers.

We are indeed already looking at a different market today, but it's fortunately on track to return to a market in which the price of a house is closer to its value for its loving owners, who are, or want to become, rooted in the community and sometimes participate in town meetings, who want to be in a good school district, maybe have a decent commute to their jobs, and everything else instead of speculative interests, like buy-and-sell-higher schemes, buy-for-resale/fixer-upper contractor jobs, quick-resale hopes, and the like.

We're hoping to buy our first home this summer, thanks to the irresponsible borrowers of the past six years, but we're going to make it home. Wish us and the young families like us luck.

dman

Someone needs to say something about this--http://www.fakepaycheckstubs.com. Is this legal? No wonder we have the subprime mess. We have lenders who use fake documentation to help push the loan through quickly so that everyone down the food chain (from loan processor to the loan officer to the actual lender) can make the commissions they were making during the booming 1990s. Now we are bailing out these crooks--sounds like the good ol' 1980s savings and loan bailout days to me.

Mark

@dman--you're right that people lied on their loan applications. Even if the loan officers assisted in this fraud, the borrowers still signed their names on the application.

But what of the actual lenders reviewing these fake documents? Couldn't they have picked up a phone and checked, or as Ronnie Reagan used to say, "Trust, but verify." We know the answer.

youdamnyou

Think about it, guys. No regulation, no proper verification of incomes. This will always lead to problems.

CHRIS

The majority of American consumers have not been taught the concept of a loan. They've been taught that money pours endlessly from an evil, greedy man in an expensive suit. They figure they can let the evil, greedy man take it on the chin when they can't pay their loans. Now the evil, greedy white man has no more money to lend.

Wait until these people learn that the evil, greedy man in the suit was actually the mutual fund that powered their 401K that they don't bother to monitor except to borrow from it.

By no means do the above comments apply to people facing real hardships due to circumstances beyond their control. There are always people who get into car accidents caused by heart attacks while on the way to chemo therapy after learning they've been fired after 19 years of flawless work.

The above comments are aimed at an education system that has allowed the teaching of economics to be replaced by the vilification of economics. Given the situation at Countrywide, it looks like as though lack of education extends to college-educated business majors.

I'm going to go buy a McMuffin at 22% interest on my credit card and let the rest of the world pay for it and blame Scrooge when it comes around to bite me in my assets.

Squeezebox

Whatever happened to the usury laws? The ones that said you couldn't charge more than 20% interest and fees on a loan. Back in the 1970s, if the banks needed higher interest to compensate for the risk they were taking, they just didn't undertake the risk. Subprime interest rates were illegal, and subprime customers didn't get loans.

MortgageLoser

People are missing the point that the subprime meltdown and the upcoming home equity meltdown are symptoms of a much deeper problem. The fact is that the declining value of the dollar, overall inflation, and the U.S. economic reliance on consumer spending are contributing to a basic fleecing of the middle and lower classes. Houses were simply conduits to loans that would further fuel household spending on items not otherwise afforded due to rising real costs and eroding real wages.

bt

In this great country of ours, I can't believe we are finding fault with cheap and flexible credit. Most people in most countries have little access to capital. The borrower is to blame. But the borrower and the lender are both feeling the pain, which is fine--that's what happens when you misjudge risk. The market will work this out and the government shouldn't bail the banks out (but use saving Americans as the code word for bailing banks out). Make no mistake, any talk of bailout is about bailing out Corporate America, not helping rank and file consumers. Neither should be helped. Let the market massage everything out.

Robert

I run an appraisal company, and because we don't push value, we missed a lot of that water over the transom during the go-go years. You would think that in today's burning of Rome, you would find my clients (mortgage brokers) who would be scared sh--less to even ask an appraiser to achieve a home value prior to the inspection. But you would be wrong.

Just yesterday (Jan. 16, 2007) I was asked by a mortgage company in San Diego to push an appraisal--I have the fax to prove it. When I said no, it is not possible, legally or ethically to do so, or to achieve the ludicrous value they needed to suck their fees from the homeowner's house (he's not so innocent either), they said they, and I quote, "...should have gone to an appraiser with less knowledge than mine and shop this to a lender who still has less stringent criteria than their current lender." I asked if he was serious, and he said deadpan ,"How else does this loan get done?"

My solution: All of these independent brokers who have a track record of high foreclosures need to be heavily sanctioned, fined, or jailed--even the salespeople. Show no mercy. All of the appraisers who caved into these sc--mbags need to go to jail or make restitution and lose their licenses.

Mandate apprentice-level training for mortgage brokers. Require a minimum of a two-year college degree. Make their licensing fees high. And mandatory track record surveillance as well as annual testing for relicensing.

Second, regulate Mortgage advertising with warnings to consumers.

Third, in states such as California, limit the number of new appraisers to the profession. The higher the number, the hornier the appraiser for a fee, the more chance for a collaborative relationship between new appraisers and unscrupulous lenders.

Fourth, require two appraisals for each property. One that is mortgage-lender-appointed (not borrower) and one that is bank-appointed. Average the results of those two appraisals.

Fifth, do not allow anyone to process, solicit, or sell a mortgage without a full license to do so. Make complaints against those licenses (and resolutions as well) public. In California, all you need to sell a mortgage is a CFL (California Financial License). There is more scrutiny for the Cap'n Crunch Kids Club than there is for a California Financial License. Do not allow convicted felons or those currently involved in felony cases to ever join a mortgage or an appraisal company.

Sixth, investors who bought two, three, or four homes as investments should have to provide community service as part of any bailout. If the taxpayer is going to foot any bill, I want to see that these so-called investors (Donald wanabes) get no tax relief for those homes unless they are prepared to give back to the communities they have depleted--kind of like the WPA for investors. We have welfare to work programs, so how about a tax relief to work program? Let's get something out of these people who want me to tsk, tsk for them. Greed is good, but as these people must learn, greed is not God.

Michael

It is amazing how much power the individual has in this country. Who created the mortgage crisis? The borrower. Who is to blame for the high cost of health care? The recipient. Who is responsible for lung cancer from smoking? The smoker. Who is responsible for the high cost of car insurance? The driver. Who is responsible for the Social Security mess? You get the picture. So much for free markets and companies making the money.

David Messmore

To quote The Money Book from Consumer Reports, "Buying a home is the single largest purchase most people ever make. For that reason alone, it is imperative that you learn as much as possible about the subject before beginning house hunting. For most families, monthly home costs should not exceed one to one and a half weeks take-home pay." It would appear that not many borrowers chose to do their homework before signing on the dotted line. I feel that while both sides are responsible for the mortgage crisis, it is the borrowers who are victims of their own ignorance. The golden rule is: "Look out for No. 1." People were ignorant of this, and now the entire U.S. economy is going to pay the price. I don't expect a response, but this is what I think happened. There is no substitute for being prepared. So what if a bank or mortgage lender says, "I'll give you more than you can afford"? Only you know how much you can afford. Temptation is the hardest to resist.

Brian R

Clearly, we Americans support a bailout of home buyers who are having difficulty making their payments. That sarcasm aside, I urge my fellow readers to fax or e-mail a letter to their representatives opposing any such bailout, including any proposal to increase Fannie's and Freddie's loan limit. Any increase in that limit would inevitably and quickly lead to even greater losses at Fannie and Freddie. As it is, those entities are dangerously low on capital, meaning that should their balance sheets get worse, those entities will place a call to Congress, politely requesting assistance from the taxpayers.

Diane Rambow

Some religions believe in shape-shifting--I guess the real estate industry does, too.

Now was that a crow, a hawk, a lamb, or a snake--when a shape shifts at the speed of light, I remain "so confused, so confused."

Ah yes, Hitler said: "Keep them confused," and I guess millions are.

With parents potentially bailing out their (grown) children's bad investments by buying into this concept, you have millions of parents pulling money from CDs (and the like), yanking money from the stock market so they can save children before they default.

Yes, there are many intelligent and viable commentaries on this subject (right here--posted). However, I'm inclined to believe there was a strategy in all this.

Not just the homeowner, not just the parents bailing out their homeowner children, but the reduction of equity in not only the immediate property but also entire neighborhoods being undervalued because they were overvalued to start with.

It's all about that decimal point, all about the big banks getting write offs, all about the rich staying rich, and the not-so-rich joining the poor.

It's clear that to have this coincide with the upcoming elections to mesh with the Medicare and health-care mess, the huge national deficit, and plunging stock market, that this was a contrivance not seen since the S&L scheme--and the RTC that allowed the commercial banks to grab up all the S&L accounts/loans/assets for pennies on the dollar.

A fast, slick computer-generated forecast easily could have shown the cause and effect of such a mess, and it's clear that this was a scheme that only a few would know about, more than a few would benefit from in terms of dollars, and a few more than a few would be able to grab up property and housing in a way we haven't seen (or at least recognized) because we've never had the ability to exchange information in the way we do now.

I'm also suspect that too many banks were using software to analyze the applicant's profile. Bad software equals bad decisions.

When we lost the human element, when we ditched the human brain, when we cut corners by hiring people who could punch 1 for English; 2 for another language, 3 to get approval for a loan, and 4 to go back to the operator because all lines were busy, we adopted a type of economics that was all about the nine numbers and the one that is called zero.

It would appear we've outsourced more than our jobs; we've outsourced our wisdom, logic, and integrity. I hope it's not too late to get back all of what we had that built this nation soundly.

windsearcher

Pros and cons in everything. I have tried to go without taking my daily dose of 10 mg of Lipitor for a period of four months, and my cholesterol went up 40%. I am well, and the only other thing I have is underactive thyroid, never been overweight, excellent blood pressure, always watchful of my Mediterranean diet (where I come from), so the question is: Should I quit taking the statin and let the cholesterol rise to 284? When all is said and done, I will stay on because when I quit once, my breathing became labored during my daily exercises. Each person should be responsible for their own wellness by whatever means possible.
Granny,79

Steve

For years I've watched in amazement as more and more top-tier financial institutions started to pitch home equity loans. All of their pitches to all of the greedy American consumers out there carried a tone of voice that said, "This is easy, cash in on your imaginary wealth, and then spend, spend on whatever you want. It's easy, just call."

Nearly all financial institutions did this. It's 50% their fault and 50% the fault of all the greedy, greedy, and greedy American consumers who relished the idea of driving a bigger car and living in a better house. Capitalism was being fueled by the excesses of consumer greed; that's why we're in this mess. Let them all default on their loans, so that smart people like me can cash in on their now depressed home prices. And yes, I'm an American.

Tom

Both sides have merit, but the base question is, "Why did the honest borrower not have the loan contract reviewed by an attorney?" Had that been done, with the advice being heeded, a large portion of the crisis would not exist. The worst part of the problem as I see it is: the longstanding owner, retired or disabled on a fixed income, who gets hit with an incredible property tax increase without any way to mitigate the assessor's decision--it's hard to argue that your property is worth $100K when properties around you are being sold for $2K+ or the local casinos get property tax breaks arguing "economic hardship" (an avenue not available to the unwashed masses by device or fluke in the laws) while posing record profits. Where is the Constitutional equal protection we are guaranteed?

Regarding those who knowingly broke or bent the laws possibly getting jail time: A few will go to jail, but it will be the usual dog and pony show. The real jail time should start at the top of the various food chains, and go all the way down to the private company's lowest mortgage writer at the real estate office. Upon conviction they should forfeit any and all pensions, stocks, 401s, etc., to help pay off defaulted loans or aid those in demonstrated financial need, i.e., retired, disabled, etc. The bar for protecting innocent families would lie with the state's divorce laws, which normally address income levels and asset distribution. The prerequisite would be a complete audit (forensic for mid to upper management) to preclude any sudden trusts, changes, or means to hide or disappear assets--the affected person's portion of the estate would pay the expenses incurred. The person, upon conviction, would serve time in a federal prison.

This is a rough idea, but everyone in the subprime debacle's fallout should be held to account. No Enron or any other pseudo-investigations--it's all or none.

dawn harsley

Per usual, it's always somebody else's fault. The real problem lies with the Age of Entitlement. The "I want it now" mentality that causes these individuals to buy more than they can afford and what it took their parents years to achieve.

Yes, they thought prices would continue to rise and they could sell at a profit or refinance. Do we bail out those gamblers who lose in Vegas? They gambled, and they lost. It's time to quit whining and pay up.

mel

Has anyone posted information on credit unions in this matter?

JOHNSTONJ

I believe that many of these loans would be able to be repaid. However, too many jobs have gone overseas, and if it doesn't stop, our economy will soon fail.

JHR Phoenix

Every article I read blames the banks for the financial crisis we are in. Additionally, the do-gooders are screaming for the taxpayer to bail out the "innocent" borrower. The very real people who caused this and are continuing to do so, are the individual borrowers and the terrible real estate industry that greased the skids for all this. The borrowers should be told to shut up and learn how to conduct their affairs like the rest of us. Then put about 200,000 greedy real estate people in jail, or return their exorbitant commissions to the banks.
JHR Phoenix

Laughing out loud

I knew something was wrong about the system when I sold in 2005 one of my apartments for seven times what I had paid in 1997. The market was depressed in the mid-1990s, but not that depressed. Something was terribly off.

I then left my job and proceeded to sell everything. Last one was unloaded mid 2006. A once-in-a-lifetime opportunity.

So long, suckers.

StoptheMadness

The "con" assertion is ridiculous. Buyers are not to blame because "they bought houses they otherwise could not have afforded"? This statement precisely explains why they are at fault.

"They expected that house prices would continue to increase...Many guessed wrong..."

Again, who's to blame for that? Let's continue with the author's gambling reference. If I go to Vegas, I know that if I put any money on the tables, I may win double or I may lose it entirely. If I put my last $20 in the world on the table and then lose it, is it the fault of the dealer who took it? Was he somehow evil for beckoning me over to the table to play? Didn't I belly up thinking that it was a somehow a sure thing? Doesn't it therefore make it my fault that I'm now broke, and didn't really understand (or chose to disregard) how the whole thing works?

And should I later appeal to the cashier to give me back some of the money I lost because I made a poor decision trying to "better my life and finances" in a stupid and risky way?

Lisa

Banks created a stated income program. It means no documents were required to show a borrower's income on a W2 or income tax return. Borrowers overstated income to get loans and buy houses with the intention of resale to make big money.

Second, banks allowed 100% financing--no money down. This is wrong.
A stated income program and 100% are wrong and should not be allowed. The borrower should document income and have money for a down payment of 20%. What kind of borrower is this? No money? Where is the money for emergencies?

If people cannot afford the house , they should not buy--very simple.

luigi

Borrowers are the ones that goof up, buying big houses with little to pay the mortgages. The blame does not fall on the lenders.

Jim McGee

The banks are trying to blame anyone they can find for a problem that they created. In an effort to sell more product and earn more fees, lenders were throwing money at everyone. "Can't qualify, no problem! We'll qualify you at an unrealistically low rate even though we know you can't afford the loan when it adjusts." Fraudulent borrowers are a very small part of the problem. Banks should readdress their entire loan portfolio and offer more realistic refinancing whenever possible. Of course, to do that, they would have to accept ownership of the problem, and it doesn't appear that they will ever do that.

Steve

The borrower signed a contract. It's not the taxpayers' job to bail out his stupidity, or a gamble gone bad.

James

It is a larger issue. I remember trying to buy a car or anything else on credit in the late 1970s after I married, and I had to prove twice over that I could make the payments. The lenders looked over every other payment I was making, until they convinced themselves that I could make their payments.

Now, when I buy something on credit, no one cares what other payments I am making or how much they are. All they look at is my credit rating, if that. The playing field for borrowing has become too easy to navigate, and many folks are falling victim to credit that is too easy to acquire.

D.D.

From a real estate agent's point of view: We are all to blame, meaning everyone from the buyer to the agent to the lender, inspector, and everyone involved. The buyers are guilty because of their "dream." All people nowadays want to own their own homes. A lot of those folks have no business owning their own home. They cannot afford the house payment, insurance, taxes, and upkeep. They think they can make it. Surprise, they cannot. Most real estate agents will push to sell anyone a home. They think, who cares?--as long as they sell something. After the sale, it is up to the buyer. Then the lender wants to make everybody happy. So they lend money to questionable borrowers. They, too, hope that they can repay. In some cases, the agents might even mislead lenders to make the sale. Then you have appraisers who also are becoming very competitive, and they do what they can to make folks happy. At times, you can very easily have an inflated price. Then you have everyone else that is involved. They may shy a little toward the edge just for the dollars. Face it: If people don't perform their jobs as their clients expect, they will be fired and the clients will go to their competitors. Then from all this, it is a giant snowball effect. My advice to home buyers is to know all the parties you are dealing directly with. "Can you trust them?" That goes hand and hand with honesty on the part of everyone involved.

Big Horn

OK, who really is the victim here? Who gets stuck with the REO? Who got most of the money up front when the loan was funded? Was it the mortgage broker,the title company, the real estate agent, or the developer, or all of the above?

Who takes the biggest loss, the buyer who got in the house on a wing and a prayer with no down payment or the lender that now has to deal with the foreclosed property?

How about the middlemen who got paid up front in the transaction, real estate agents, appraisers, developers, mortgage brokers, title companies, etc.? They have skated free and have ended up with the biggest share of the profits. They are still driving their new cars and laughing all the way to the bank.

Who got the gold mine, and who got the shaft?

jgen

I am guilty of buying a home I couldn't afford. I thought my business would just "take off," and everything would be great. Things changed. I received some medical news that wasn't good. A few months back before I was even one month behind, I called the lender and told them I had some problems and asked if we could please work something out--perhaps put three payments on the back end to give me a fresh start. I was flat out told no. I now have horrible credit, medical bills, and no place for my sons, pets, and me to live. We've been told to leave within three weeks. With my credit, no one even wants to rent to me. I am already in my fifties. The chances of my getting another house are pretty much nonexistent.

T.T

The average Joe, and I do mean average, says, who is going to buy high ticket items and be able to keep them if we keep moving forward in the "global economy" mode where the political groups have legislated manufacturing jobs to leave our country? These jobs are needed because they are the real backbone of the country. I guess it was poor planning on the part of people with an "American dream" to try to live anywhere other than an apartment at this point in history. These jobs were needed for people who are challenged, elderly, kids having kids, people getting out of the prison system, and just plain people in the real world. When the manufacturing factories come back, this recovery will become a reality and people will be able to find the "American dream" once more. The Mom and Pop shop that once was in you area is not to be found--anywhere in the country in reality. Of course, I sound negative. I am a college graduate with 25 years of experience in quality who for the first time in my life is now unemployed. I, too, hope we can hang on to the old homestead.

Dave Walker

This would be an excellent time for investors, bankers, buyers, agents, lenders, etc., to learn the difference between a home's price and a home's value.

KBELOV

The blame lies on both ends, but I think the brunt of it lies on the lenders. They saw the credit reports and the pay stubs but decided to push the loan through anyway. But at the same time, the borrower should have known better. I myself was being pressured into buying a home from a former co-worker-turned-real-estate-agent, but I knew that it was something I could not do because I was financing my education out of pocket and my credit was a little shaky as well. So common sense should have warned the borrowers, and common banking practices should have warned the lenders.

Rodney

The blame should go to only those with big pockets (Wall Street) who gave the mortgage brokers the ability to sell these loans. The mortgage brokers are given products to sell under the guise of getting everyone, regardless of credit, into a home. The mortgage brokers sold what was available to them to sell. Yes, the customers should have read more clearly what they signed and the brokers should have explained to the customers what they were signing. But again, it's like going over the drug dealer on the street when he is not the one bringing the product in. And the reason we don't go after the big guys is that it would be too easy and someone on the top would get exposed.

JERRY

The borrowers are totally responsible. There is no excuse. They were greedy and should pay. As far as being duped, that's crazy. If they're that stupid, they'll lose everything anyway.

Matthew

The buyers are completely responsible.

Nikolaj

If something is rotten in the state of Denmark (Shakespeare), I am sure that even the President of the United States--if he wants--could address less desirable attitudes of a group of his own people (and finance corporations) in the lending industry in the USA (and possibly globally). I look forward to some kind of social responsibility from the assumed professionals of the lending industry.

Jeff H in Connecticut

George Benston: According to your line of thinking, it should be perfectly OK for me to go put all my retirement money in stocks assuming they are going to continue to go up and then they don't or heaven forbid the possibility that what? they might even go down. Well, who in their right mind would have thought of that possibility? Certainly not me, so now the government should come and bail me out and give me more money to live? Are you nuts? You're saying it is not people's fault for buying more house than they could afford because they gambled and they guessed on the wrong side?

So I guess that according to you, there should be someone in every casino parking lot writing checks to everyone who didn't win while partaking in the festivities.

Travis

I feel the lenders are at fault and should pay dearly for it. They knew what they were getting themselves into and not following proper background checks, but were not too concerned about it as long as the checks and bonuses were coming in, but as soon as the defaults start, they play their ignorance card? Give me a break.

If other people dig themselves into a hole, they are told to stop digging and get out. Well, the same should go for them.

Eric

Let's say I willingly buy a $2,000 LCD HD-TV off the back of an unmarked pickup truck for $250. The cops show up and bust the thieves and me for buying hot property. Can I plead "ignorant, credit-poor home buyer" as an excuse and get off without any fines? If not, then all the irresponsible idiots are guilty as charged. If it sounds too good to be true, then it probably is not true.

Larry

While we're on the subject of bailouts, I'd like to be reimbursed for that tech stock that I bought in the late 1990s just before the stock bubble burst. My excuses:

1. I had no idea what I was doing.

2. My online trading company did not properly inform me that stocks sometimes go down.

3. I am a victim of the American educational system.

4. I was certain that a big stock windfall would allow me to be big pimpin'.

5. The economy took advantage of my gentle nature.

Becky

This article, I must admit, made me go hmmm on both sides. I agree that the borrowers knew they couldn't afford the payments and falsified information, but think about this for a minute.

These customers knew they couldn't afford the payments but really wanted to get into the house and live the American dream. The brokers and lenders saw dollar signs because their business was down, and they went along with the customers, giving them the American dream.

I put the blame on the borrowers and the brokers and lenders.

But the responsibility should really be put on the investors who bought the mortgages from the lenders. They were stupid enough to buy these loans and take risks with unstable borrowers, so I feel they should be the ones to get America out of this housing slump and then be penalized by the government.

I used to work for a few of these brokers and lenders who sold subprime mortgages to their investors. These brokers and lenders lied to the investors about the borrowers and their repayment options. These brokers and lenders in my opinion will do anything in their power to get that commission. One broker that I worked for did just that. He closed the loan with the borrowers and wanted nothing to do with the borrowers after he got the commission check. I believe that brokers and lenders are the sneakiest people around, and I wouldn't trust them as far as I can throw them.

Tammi

I have to say that I agree with both sides. I am a settlement agent, and I have seen both what borrowers and brokers did, and I have stopped a few closings myself because I did not like what was going on. I believe that borrowers pushed for loans that they thought they would eventually be able to afford, and brokers did anything and everything to make the borrowers happy. I also place some blame on appraisers who artificially inflated the values to make loans "work" under the request of the "good client."

And one thing that no one is taking into consideration is the price of oil. Someone who was "making it" cannot make it now because they are paying for gas and heating for the home. Everything has gone up in price,and what suffers? The mortgage payment, because as we all know, it is usually the biggest debt people carry.

I believe the only thing that can be done is to force lenders to refinance borrowers at no cost into lower interest rates (what we call CEMAs) to stop the foreclosures. It is as close to a win-win as possible. The lender continues to get the payments, and the borrowers keep the homes.

If-It-Sounds-Too-Good-To-Be-True...

All I can say is the Feds had better not raise taxes to bail people out. Those of us who bought within our means and have been diligent about our responsibilities do not deserve to have to pick up the pieces for this subprime mess. It's the adage--if it sounds too good to be true, it is. Yes, there are certainly situations where through no fault of their own, people who did all the right things (bought within their means, etc.) are losing their homes due to catastrophic illness, layoffs, etc. That's not related to this. There are also situations where people bought to flip and make a huge profit but got caught in the downslide--too bad, so sad for those with greed. For the subprimes, the lenders should be the ones forced to renegotiate in good faith. For these lenders to walk with the profits they've made to date and then write off their losses on the backs of the American people is really incomprehensible It seems like the big corporations are always getting bailouts, and we the people get screwed--Enron, Chrysler, etc. Why aren't they ever required to dig into their corporate profits and take the hit? Maybe lower the CEO's and CFO's salaries.

Tammi

Big Horn, what do you think title agents made on these deals? I can tell you--very little. There is no value in closing a bogus deal for a title agent.

chuck

Once upon a time, some famous people said that capitalism would implode from the effects of its own greed. Really?

SO SAD

We are in the process of losing our home, and it has more to do with our home's value than the loan itself. We knew we would refinance in a few years. However, we did not anticipate the significant drop in value we have experienced. We purchased a new home and within a year and a half, the builder sold the remaining homes to themselves at half the price. Our interest rate increased, we have to refinance, and no bank wants to refinance. We make more than $160,000 a year but cannot afford to keep our home since our payment increased $1,500. Very sad. We thought we did everything right.

Responsible Individual

Many people are missing out on why banks lend money to a risky borrower. Here is what happens.

1. Credit-poor people see everyone else get rich from owning property, so they want to get in on the action.

2. Mortgage brokers gets paid per transaction. They get paid a fix percentage of the loan.

3. Brokers with established relationships with banks could probably get by without actually providing proper documentation on the borrower.

4. Property value was "always rising" during the go-go days of 2004, 2005, 2006. So, one could assume a $200,000 home that went into contract with a purchaser in Jan. of 2005 will be worth $220,000 by June or July of 2005. So, with that in mind, it is not hard for people with not enough or no down payment to get approved on a $200,000 loan in June, for the purchase of a house started in Jan.

5. Borrower knows there is a good possibility that the rate may never get lower than the 4.25% ARM; actually, it is given that the Fed will not lend money out at lower than 0.5% interest. So the borrower knew for a fact that the interest can only go up when the ARM readjust. But they were counting on their house to go from $200,000 to $300,000 in three years, at which time they will refinance a $300,000 home in which they owe $200,000 still into a fixed rate mortgage. Reasonable assumption--except it only works if you believe in fairy tales.

6. Idiot gets to buy a house he or she can't afford. Brokers make away with their commission on the transaction. Lenders get steady stream of income backed by the only thing that is of any value outside of gold. Builders crank out houses as quickly as they could sell them and charge more than what the house would be reasonably worth and make a hefty profit. Everybody wins.

Pop!

7. Homes are worth less than the original value. Can't refinance a ARM into a fixed rate when you have no equity in the house.

8. Banks can't lend out anymore, borrowers default on the loan, lending dries up, and brokers go belly up, builders can't build houses since there are no buyers. Everyone involved is looking for sympathy, but not from me, and here is why:

9. The Feds (bleeding heart liberals) want to ease the suffering of poor innocent homeowners who got in over their head and were misled by big evil banks into signing on the dotted line. The Feds lower rate on U.S. currency they lend to banks, note the U.S. currency part because foreign government isn't sending money to bail out CitiBank, Countrywide, or Washington Mutual--it is up to our government. The banks renegotiate with the irresponsible idiots to keep the readjusted rate low. Responsible people like me who locked in at a higher than ARM rate gets the shaft; the banks aren't going to lower my interest accordingly.

10. U.S. government comes up with more ways to spend the taxes they collect from my sorry behind for staying with my sorry job. They give out taxes collected from me and give it to the lazy idiots who now have no job, have no money, have no equity, have no hope, have no self-restraint, and hope they can spend my money at the place where I serve them and make fun of me for working so darn hard when they are at home drawing unemployment because the job I do is beneath them and they'd rather the Democrats extend the unemployment benefits to 52 weeks so they don't ever have to come to the place where I work and apply for a $10 per hour job because government will take care of them.

11. To top it all off, now the other countries don't believe in anything made in the U.S.A. including the stupid "greenback." So, the freaking $10 an hour I earned is worth crap because Sony wants to charge me more for the stupid new TV I have been wanting, and Toyota wants to raise the price on the 2009 Corolla because the dollar is worth less this year than last year.

All because of the freaking idiots that lived beyond their means.

dave

There is a lot of blame being spread around. And there are instances of most everyone of these. But to what extent if a subprime borrower cannot get a loan except for a two- or three-year ARM? (That is what is offered at a reasonable rate.) Who is to blame? Try the mortgage bank that offers those loans. Today it is difficult to get a prime borrower a loan with anything but a straight conforming application, but subprime lenders (banks) are still there offering 100% loans.

Eric

Becky, you are an idiot. How can investors be the ones to blame? The purchasers of these mortgage-backed investment vehicles are looking for something stable. They weren't looking for double-digit returns when they bought these investments. They were simply looking for 5% to 6% annual return. Anyway, individual investors do not have the means or access to these investment vehicles. Most of these mortgage-backed investments are purchased by 401K managers and various state and local entities that are responsible for teachers' or union workers' retirement funds. They weren't looking to strike it rich; they were just looking for a steady return.

Let me guess, you were actually one of the irresponsible people who bought more than your salaries can afford and are now looking for other people to bail you out? What more could morons or idiots like that get out of liberals like you?

jeb

How long will it be before the government mandates that we all walk around with helmets on 24-7-365 so we can prevent head injuries? These nanny state politicians who pander with their bailout blather make me sick. The funny part is, you have all these spineless losers who are cheering them on. Who do they think will be paying for those bailouts? The subprime fairy?

Russell

I live in LA, and most of the people who took out their loans gave false income statements and stated income. The banks, like any other businesses, took the info for real as the market heated up and TV shows (Flip this House) kept showing people making money left and right, and the market went south.

c.lowe

I am a real estate agent in Texas. Many mortgage lenders make unknowledgeable buyers think once their ARM is up they can easily refinance again, not telling them that they cannot be approved for another subprime loan. There is no way their credit will improve that much in a year to two years' time. Lenders are not explaining in laymen's terms, only in the terms they can understand and are leaving the buyers to realize a year or two later they were led wrong. I have heard this from so many people looking to save their homes.

john

The borrower is not responsible for the subprime mortgage crisis. The borrower is responsible for the mortgage that he or she agreed to. The rest is someone else's problem. If a bank wound up with 25,000 defaulted loans, there are 25,000 people involved--plus one bank. All these banks overlooked the idea that they themselves might be buying into a deal that wasn't sound. And the borrowers didn't approve their own mortgages. When you are getting people from the other side of the continent or maybe even the other side of the ocean making decisions based solely on a piece of paper that just lies there and anyone can write anything on it, well, these things are bound to happen. If the person who was approving the loan was using his or her own money, I'll bet it would be scrutinized much more closely. Why wasn't it looked at more closely? The banks didn't want to spend the money out of their profits, so it's a risk they bear the responsibility for and the consequences of.

maxine schleisner

I understand both sides, but I was a person who had a predatory lender who promised a fixed loan for 30 years including taxes and ins. When we got to the closing table, we found the ARM for two years, then a major jump after that and nothing included in the payment. Yes, we could have walked away, but we were people who hoped we could find a new mortgage in that two-year period to fix the problem. That did not work, and things were getting out of hand as of 2006. What did I do? I sold our home for double what I paid for it, even though we had done many upgrades and we really were not repaying ourselves for what we had done. Yet we sold, and the new owner who did buy it could not sell. That home was on the market for over a year at his asking price and he didn't sell it; he rented it. We didn't lie on our application, and they knew our financial situation and that's why we could not qualify for a better mortgage, but to find that out at the closing table isn't right; they should have had to tell the truth before then and not keep telling you, don't pay the mortgage to the current loan or you might not get it back for a long time. That was just crazy. We trusted someone in California, and we lived in Florida, and we talked on the phone and not in person. Now I say if you can't look into their eyes, don't trust the lenders. We now rent an apartment, and this isn't so bad. We get the pools, lawn maintained, and package pick up at the office. We have just as much room and a fireplace just like in our home. We have a patio just like in our home, and less work and worry. I don't worry about any extra taxes or insurance. My rent takes that all away. Sorry, but I don't want to own the homes anymore. I have learned how to live just as happily in my town home and paying my rent. I don't know if this will matter to the conversation regarding this, but I am happy to know the owner couldn't make a fortune on my home and got stuck with something not worth much more than he paid. I feel as though I made the best deal possible at the time for my family, and I will never trust another lender until someone keeps them in line.

Nancy

I believe bad things happen to good people, which in my case did happen. I took out an interest-only loan at the advice of my lender and refinanced at the end of the year. I did everything they asked of me, and unfortunately my house did not appraise for what it appraised for one year earlier. What is wrong with this picture? I don't believe that all who are involved in this situation were dishonest, and I blame the lenders for offering products that were not ethical. They got us in this mess, and they need to get us out. The appraisers in Florida also need to be held accountable for their greed and dishonesty.

Jon Kixmiller

When a house is bought (assuming no actual fraud), the buyer is committing to buy according to the terms of the contract. No one forces them to buy, much less buy a home they cannot afford. Live within your means, and you keep your home. Bailouts for bad deals do not help anyone. (I know there will be many comments about the folks who have run into hardships, but those are the exceptions.)

The lenders who made these loans deserve what they get. Zero down, no qualifying, terms that make no sense. If a buyer has no skin in the game, why do you expect they will work to keep the home? In reality, many of these are nothing more than leases.

The guys who really need to be boiled are the packagers of the secondary paper for all of this. Who was doing the analysis of the loans? Obviously the brightest minds on Wall Street were not on the job--or were they? Judging from the bonus money handed out, someone was happy.

Let the market take care of this without Hillary, Obama, or any other do-gooder from Congress stepping in to help. Every time they help, we get another mess like this one.

Shannon

We bought our first house three years ago. We were young and did not have a lot of down payment. Don't worry, says the real estate person, the one who helped us obtain our funding. So we didn't worry. It was a first for us. The lender never required an appraisal or a survey. It happens they tell us. OK, we said. We made all our payments, no problem. Our interest rate adjusted to 8%, and we continued to make all our payments. We even added a fireplace, ceramic tiles, and hardwood floors. We started to shop around to refinance. Our mortgage adjusted again. Now it was at 11%, but we still made the payments. Barely. Babies have come since then, and things are getting tight. Four of our neighbors lost their houses. We get a new lender wanting to "help" us. We get that new appraisal. Well, it says that our home is worth $30,000.00 less then what we paid for it. Property values are down and foreclosures are up, and that affects everything. Four houses with the same square footage as mine sold for under $100,000.00 in the last six months, so mine is not worth much. Great, we say, now what? We start trying to figure what we can do. All mortgage companies tell us if we can come up with $15,000 to make a down payment on the house we own, then we can refinance. Now, our mortgage has adjusted again; it's at 15%. We are paying $2,700 a month for a $140,000 loan on a house worth $110,000.

Yeah, we should have looked more into buying a house. We just wanted to get married and have a home. We did that. Now, we have to find someone to take in the family pet, great dog, and look for an apartment.

Michigan is in a depression. People don't like to use that word, but that is what it is. People are losing jobs and letting houses go. What more can people do? The mortgage company should have required appraisals and surveys. I shoulder some blame. I never should have signed the papers, but I could not begin to think this is what would happen.

RON

As a portfolio liquidator for all these distressed assets, I laugh at basic public ignorance. For years, any warm body that could fog a mirror was given a home loan, and most could never afford them to begin with. Stupid, uneducated borrowing--ignorance is not an excuse. Nor is the greed of the mortgage industry an acceptable excuse. The rich did their surfing on this wave as well, speculating on a short-term rise in income properties and sucking every penny of equity they had in anything they owned to join the gravy train.

Wake up, America. Your greed got you here and, as a liquidator, it is now my turn to sell this country off, block by block, city by city, to any hedge fund or foreign government cash-heavy enough to exploit the greed of the past five years.

Only in America -- gotta love it. Same as dot-com garbage, except this time you all took the bait.

Good luck.

Yvon

Those stating the truth is in the middle are correct. Being a buyer nine years ago and again five years ago (who is making my payments), I have a hard time pinning this on either side. I was offered way too much mortgage for my budget, and I was smart enough to know it. Furthermore, I took a fixed-rate mortgage, but later an equity loan that was an ARM. Thankfully, the flexible loan was relatively small.

However, both sides betting that the profit bubble would keep going were greedy. Both sides should be protecting their own interests with due diligence. I think none of us should be bailing any of the involved parties out.

How dumb do you have to be to enter into the biggest contract of your life (most likely) and not understand what you are getting into? That's what financial advisers, CPAs, and lawyers are there for--to be hired for your benefit.

Duh to all involved.

John in AZ

I'm nowhere near being a financial expert, but when I saw housing go up about 40% year over year for a couple of years, common sense told me that this was going to end in a bad way. Whose salary is going up by that much? If you could only afford a $150K home two years ago, how can you now afford a $300K home just two years later? Then I heard about the interest-only ARM loans, etc. Interest only with adjustable rate equals recipe for disaster.

Lenders knew most people couldn't buy a home with a conventional loan so they created "products" that would allow them to. A lot more people became classified as subprime borrowers only because of the ridiculously inflated prices.

A lot of people got caught up in the emotional frenzy. The lenders, real-estate agents and speculators all helped drive the buying frenzy and out of control price increases. The consumers let emotion override common sense. If the consumers would have stopped buying because of the ridiculously inflated prices, the market would have corrected itself. The truth is that both the lenders and borrowers could have corrected the market before it went out of control. There's enough blame to go around for everyone.

Barbara Ann Jackson

Despite many probes into factors of the mortgage crisis, there has been almost no investigation into the most lethal mortgage crisis component: debt collection abuse and judicial collusion. The Feds need to seek the whereabouts of perhaps billions of dollars and massive amounts of real estate that winds up in the collector attorneys' possession--as well as the scores of attorney bankruptcy court frauds.

These debt collector attorneys deliberately file foreclosures naming defunct mortgage companies or companies that no longer hold the notes; or affix collectors' fees exceeding "acceleration clauses." If homeowners sue for "unfair debt collection practices," collectors make more dollars through protracted litigation. Additionally, some collectors file in bankruptcy court falsified motions to "lift stay" pleadings for purposes of accomplishing simulated auctions of real estate properties.

Also, as an added measure to heighten chances of judicial favor, collector attorneys propagate that defaulted property owners are costing their clients a lot of money, while the true culprit is collectors' fraud and racketeering. Exploiting distressed property owners for purposes of making money from their predicaments and then lying about them to the courts has to be the cruelest exploitation and maligning against people faced with becoming homeless.

Real estate foreclosures are bonanzas for unscrupulous lenders because foreclosures enable property flipping, and flipping enables misleading investors concerning housing market profits. Because of fraudulent foreclosures, scores of people have not lawfully lost ownership of their homes, and are legally still owners, but they do not know it. Also, despite that some foreclosures are null, some owners are sued for "deficiency."

In states like Louisiana, because Wells Fargo and Freddie Mac greatly benefit from fraudulent foreclosures, any representation about billion dollar losses due to people defaulting on mortgages should be weighed against needless payments of legal fees to law firms that outmaneuver and even persecute people who file court proceedings in opposition to fraudulent foreclosures and repossessions. Further, via "You Tube" propaganda, not only does Freddie Mac seek to conceal Freddie's duplicitous role in real estate frauds, but it also seeks to insult basic intelligence by coining a narrow definition of foreclosure fraud. Quite simply, fraud is res ipsa loquitur.

For a purported debt of $86,000, through use of a nonexistent mortgage company, attorneys racked up more than a quarter of a million dollars in litigation fees. Later, the property was sold to a third party for $37,000. Investors got nothing, nothing practical was accomplished by evicting the homeowners, and neighborhood property values declined.

In August, 2005, Freddie Mac evicted property owners, because Freddie Mac (falsely) claims to have purchased their property in year 2005, from a mortgage company that has been defunct since year 2002.
Barbara Ann Jackson
Law & Grace Inc.

kenn_chann

Both parties are at fault, greedy investors who helped set up this mess and idiots who took out such foolish loans. I have worked for a solid company for 10 years and have never seen cost of living pay increases match what some of the borrowers were expecting to receive. How can you agree to a loan that after two or three years is going to adjust to a level that is obviously out of reach? They were speculating on the housing boom, expecting prices to keep climbing. Obviously not a given, and speculating on their own pay, expecting it to rise, once again not a given. How can you feel sorry for either party? Let them bail themselves out; no federal money should be expended to help either party. Sometimes lessons need to be learned, and sometimes they are hard. The hard lessons will be the ones that are not forgotten so easily.

Bruce Stone

Clearly, the subprime mess responsibility lies directly with the Republican party and its laissez faire approach to regulation and application of their failed policies to the management of the national economy.

The Bush Administration set a policy of benign neglect, allowing corporations to set their own boundaries on conduct, because a "bubble" economy was an easier band-aid for the deflationary economy of the late 90s and early 2000s than taking the fiscal medicine of the equivalent of the "Japan deflationary decade."

First, they allowed the tech companies to over-leverage and use nonregulated hedge funds and overseas investment houses to artificially inflate that segment while allowing housing, manufacturing, and other "traditional" segments wither in a huge contraction. Then when that bubble burst, Greenspan and company opened the monetary flood gates with 1% interest rates and loosened banking and investment regulation to levels not seen since the 20s and 30s. Now we are in a situation where we face a true financial system crisis--yet nobody in the government is seriously discussing reigning in predatory capitalist corporations with regulations that have real teeth--nor is anyone seriously considering the systemic adjustments needed to avoid the cycle again.

I can almost hear folks out there screaming "conspiracy theorist nut bag." OK, let's test that theory. Over the next 24 months does anyone want to take a bet for any amount up to $100 that we have the following?:

1. A Fed funds rate at 1.5 or lower
2. Inflation for at least seven months at double digits
and
3. Unemployment above 8% by the end of 2009

How can I be so certain? Because the government has been positioning itself to wipe out the deficits criminally incurred over the last eight years by "growing"--read inflating--the size of GDP. Hence the shift in arguments since 2007 on the Republican side from a "balanced budget" concern to a "percent of GDP" concern on the deficit--the only way to balance a budget is fiscal discipline; but putting the deficits to a steadily declining percentage of GDP is easily done by inflating the money supply--smoke and mirrors, but an easy way to win elections and line your pockets.

The sad fact is that we have seen these policies before--in the Coolidge, Harding, and Hoover Administrations with a similar "let the individual self-regulate" mentality, reduced taxes on the wealthiest, gutting the inheritance tax system to allow the "royalization" of the American upper 10%, and loosening business regulation for 19 years until the great Depression finally forced the rest of America to wake up to their lunacy and set a course to the New Deal.

The bottom line is that just like the ephemeral war on terror and the imaginary trickle down effect of allowing a royal class of superrich to prosper at the expense of all the rest of us eventually, all the Republican/conservative spin in the world doesn't hide the fact that their policies are as destructive now as they were in the period of 1910 to 1929--and they will have the very same effects eventually--and so they are completely responsible for this debacle.

David

The biggest laugh is on the bankers. Yes, many borrowers were foolish. The lenders, however, simply packaged up the risky loans and sold them to the market. Then another bank division bought up the risky loans or at least pieces in the form of derivatives. Ultimately the bankers sold themselves a very large piece of their own garbage.

John R.

After losing everything in 1996 (9 properties, 15 rental units that I had bought as boarded-up houses and doing total rehabs on them all by myself) to a bank that decided not to honor its agreement with me, and then having to move into a 40-year-old shed in the woods, then Dumpster-diving for six years to build the house I now live in, then being caught by the taxman for building and being forced into a subprime loan because that "bank" decided to keep ruining my credit for 11 more years, four more than the bankruptcy, to be able to pay off the taxes, I might have a little different view. Had the "money supply" never been shut off in the first place, all those subprime borrowers (like me) could have refinanced (if their property appreciated or, like me, they created equity by adding onto their homes), and we wouldn't be in this mess to begin with. It was the Fed, who cut lending, that made all these loans go bad in the first place.

JOhn R.

I also want to answer...ignorance is no excuse. Most hard working individuals who are not "into" investing principles, mortgage origination, property appreciation rates, business cycles, proper investing techniques, etc., don't have the available time these days to invest in trying to figure out just what they should even be studying, let alone studying it all. These people have enough on their plates already without the "necessary" mortgage industry trying to lay off the blame on them for not doing just what they are sworn to do, and that is to serve their customers. Everyone please remember that money is an invention of mankind. It is merely a tool. Chrome plate it, add fancy handles and labels, and it's still just a tool that was invented by mankind to serve mankind. When it becomes more important to serve the tool than it is for a family to eat or have a roof over their heads, then it's time to throw out the tool and reinvent it. For all that's good about America, we're told diversity is what makes us the strongest. Well, good ol' Corporate America is stripping us of diversity in its pursuit of money. It's time to rethink this whole setup. But then again, that's just my opinion.

R. McMahon

There really is no pro or con here. Banks and lenders made an investment decision regarding subprime and relaxed underwriting standards to include no-doc no-down loans. Bad decision, and you lose. Homeowners made investment decisions based on the fairy tale that a depreciating item (bricks, mortar, lumber) will continuously rise in price. Too stupid to comment on. Add a little mix of pure Wall Street greed for just the right flavor, and guess what? In the end, the banks and lenders deserve the hit and do not deserve any bailout. The borrowers that invested in such an overextended market do not deserve any bailout. Sometimes, stupidity should not be rewarded.

perceptionsnow

Let me tell you a story about global population and its impact on our current situation.

In doing so, we will also need to talk about population aging, climate change, and the use of resources, all of which have been around for a long time, but their impact on the current situation is different.

It is likely that changing birth rates have affected previous economic Booms and downturns. However, the Baby Boomer bulge is different. It started in the late 1930s, just after the global population reached 2 billion (after all of human history). The Boomer generation was born, so to speak, and this bulge is by far the biggest in human history.

After WW II, the birth rates exploded and so the scene is set for the largest economic expansion ever seen, driven by the greatest population explosion ever seen and the greatest technology explosion ever seen.

By 1975 there were 4 billion humans, most of whom are Baby Boomers; that’s nearly a 100% increase in around 30 years. With some minor intervening glitches, we have seen the Boomer expansion roll on for more 60 years, but the maximum earning and spending capacity years for Boomers are now ending.

That said, the same thing that drove the last 60-year expansion is now starting to drive a similar economic contraction, that reason being demand and supply.

Yes, we have always had aging. Yes, we have always used resources. And yes, we have always had climate change. But we have never had this massive population bulge demand-driven economic explosion before.

We have never used the global energy resource (oil) on such a scale in such a tiny period of time. And the global climate has never been changed to this extent, in this tiny time period (150 years), before and not when 6 billion lives are at stake. This climate change is us.

Oh, I am sure that all of these things have been at play before, but not like this--this time is different. If the total population continues to expand, our lack of resources and the likely climate changes could finish us off globally.

If the current birth rate trends continue, then we could slowly bring back some balance and buy enough time to address the resources and climate issues. However, if we do take the longer view on resources and climate, there will be an inevitable and substantial drop in demand during the long transition period.

As Boomers move through their retirement years, their spending will reduce considerably before they start leaving us in great and increasing numbers.

This process has already started, and the eventual cause and effect ripple through the global economy will be much greater than the current subprime debacle.

Above all, look at demand and supply. The generations following the Boomers are relatively lower in both numbers and wealth.

Calculate the effect of the economic changes to the lessening of demand, as Boomer spending peaks and then recedes. Calculate, if you will, the economic stresses caused by massive amounts of money coming out of super funds to fund retirement. And calculate the massive restructuring required as those workers supporting retirees fall from 8-1 in 1950 to 3-1 in 2040.

Finally, we include the medical and associated costs, with an aging population and the outcome for government at all levels, are massive deficits.

My apology, in advance, if my reasoning is not convincing, but that is not my aim. My aim is simply to convey information about possible future directions.

Good luck to us all, and watch the debt.

Lee Ellak

I'm with the International Monetary Fund and Warren Buffet: no bailout for dumb lenders and dumber borrowers.

This rush to forgiveness of irresponsibility runs rampart in our culture, and it needs to stop. Whether forgiving debtors and lenders, or pushing for forgiveness of illegal immigrants breaking our laws, or to forgiveness of employers hiring illegal immigrants, we as a nation, as a culture of not doing the responsible thing, are destroying our culture, way of life, and our country.

Shouldn't everyone be held accountable for his or her actions? If not, why bother to have laws? The way our culture works now is that the codes of law have been reduced to menu status with residents free to choose ones they want to follow vs. laws to ignore.

I'm sorry, but from the first President Bush saying "No new taxes" to President Clinton's "I did not have sex with that woman," the stage was set for everyone else to escape any obligation to anything, whether it's the law, a marriage vow, or a promise to pay a mortgage.

With the leaders of our country not owning up to honesty, to keeping their word, and to choosing which laws to obey, it's no surprise to me that more and more people are willing to turn in the keys and walk away from their mortgages.

And please remember, our Congress put into place in 2005 revised bankruptcy code that favored credit card companies over the individual debtor. Ask yourself if your leaders (and leader wannabe like Clinton and McCain) truly represent you, the perpetual wage slave with an umbilical cord to a mortgage that is strangling you.

I see a recession blooming into a depression. I see people blocked by tight bankruptcy laws. I see millions walking away from their homes. I see debtors that feel no obligation to creditors who charge unfair interest rates (for example, option ARMs or 31% default rate on credit cards). I still see millions of foreclosures. I still see plummeting real estate prices. I still see people pretending all of this isn't happening, that "real estate will always go up." Yes, it will go up after we are dead and gone. And with inflation and a devalued dollar, of course the dollar value of the home will rise in time. But will it do you any good when you need the money now for retirement?

And I see every city, county, state, and federal government demanding higher taxes to bail out those that shouldn't be bailed out. Think about it: If we are willing to support 20 million lawbreakers that jumped our border, our leaders will gleefully bail out the foolish as well.

Lee Ellak
San Jose, Calif.

Camden

In this whole mess, everyone holds some of the blame, but I personally believe borrowers hold the majority of it. I have a subprime mortgage, but I fully knew what I was purchasing, and I was just outside of being eligible for a normal loan.

However, in my purchase, I purposely avoided the ARM like the plague, and when my loan officer wanted me to get one, I told her no, asked her for the rate comparison (which at the time was somewhere between .25% & .5% different), and then opted for a fixed rate.

Borrowers took the risk trying to flip the house in 3 to 5 years. Buying with that intention is a recipe for disaster, because the housing market is too volatile. If you buy intending to hold your house for 10 to 15 years, then you'll choose significantly different loan options, and be less likely to lose out in the end.

I feel bad for those who are in trouble because of changes in financial situations (loss of job or other major life change). It is those situations that the government and other agencies should help, not those who opted to buy more house than they had money for or those who did not fully discuss options with the people from whom they purchased their loans.

Jim

Great discussion. But I can't help but feel that this is a healthy wake-up call, just like other such painful events in the past.

Maybe it's easy for me to say, living as I do in a sane market (Rochester, N.Y.) that has been plodding along with slightly above inflation prices more or less for years. But here are the basics as I see them.

1. People can only afford a certain percentage of their income for housing, typically about 30%. Anytime the median costs exceed that, you are asking for either (a) large parts of the population homeless, or (b) a price correction. We are experiencing mostly (b) with some painful (a).

2. We are wa-a-a-y self-indulgent. Our ancestors worked hard to pay off their mortgages to build financial security for their families. We squander out equity like a kid raiding his piggy bank for an ice cream cone. For what? Luxury vacations in Aruba that our parents never dreamed of, all the while running up credit card debt? Have we lost all touch with our senses?

Now, I still think we need to regulate this out of control credit industry that saps the middling folk and siphons their wealth to the upper classes. But in the end, I think we should all be learning a lesson that there is always someone wanting to suck the financial life out of us. Buyer beware. There's one born every minute.

I guess this author would call me a Calvinist with a populist twist. Were there more of us, we would not be in this mess.

Rob

Well, let's see. I saved my money for a 20% down payment and some left over in case of a problem, made sure that I had enough of a monthly income to afford my mortgage payments, and all I can afford is a tiny little co-op on the outskirts of town. While someone else saved nothing, took out a loan with a 5% down payment, borrowed at a variable rate with small initial payments, and bought a huge luxury condo in the middle of the city. Who cares if they can't afford it in the long run? Uncle Sam will bail them out as soon as they get into trouble. Then they'll make fun of me for not borrowing and saving. That's definitely the American Dream. Live on borrowed money with safe knowledge that the American government is addicted to the bubble economy.

Oh yeah, these people are really being taken advantage of. Poor guy driving a luxury car and living in a luxury house on borrowed money. Who's the sucker here?

Paris

The U.S. government can only make gestures to appear that it cares about the issue: Face it, nobody will bail anyone out.The government simply cannot afford it. All it can do is throw speeches to revive optimism among those screwed. But no speech or promise will change the fact: Housing will continue crashing as it never did before, taking the whole economy down.
Now, you are talking about being victims. You are victims because you willingly took out a loan you could not afford to pay in the first place? Don't cry now, as most of you are adults who can read English. Poorly, it seems. Blame your greed and your greed only. Now wait, wait until they take away your credit cards, and most will find themselves totally worthless.

The new times will teach you how to live off your income, not your debt. Bye-bye, flat-screen TV and Lexus. Sounds painful. And you thought you were worth something?

PAT

A year or so back, I overheard a waiter tell another waiter that he had just bought his third house in the last three months. A system that allows something like this to happen deserves to be put out to pasture. Folks like this waiter need to feel the full effect of making very bad decisions. I say no to a bail-out.

Bud

There is a line that it seems all brokers had memorized during this bubble: "When the rate goes up, you can just refi."

Well the rates went up, and the mortgage market crashed. You can't blame ordinary people for this.

Mike Green

It's an easier solution than we're making it out to be. In many countries, the mortgage broker has a personal stake in the loans he or she sells. In California, for example, the regulations for a barber are far more strict than for a mortgage broker.

If one were facing jail time, law suits, and heavy fines for selling many loans that failed only a few months after the loans were sold, one would be conspicuously more cautious about the credentials, documents, and ability to pay under all circumstances covered by the mortgage, no matter how awful the fine print.

Since no one I've ever met has read every single line of fine print in their mortgage (why those of us with a few bucks hire lawyers), it's likely that we've all been stuck with horrible terms here and there that have not come to fruition. You can white-wash it as much as you like, but putting a clause way down in fine print Item 140 out of 200, that jacks up the loan rate 3 percentage points for any late payments, is predatory. There's no other way to describe it.

Of course, all lenders are predatory. They do whatever they can get away with.

Mike Green

Regarding "Paris" February 7, 2008 11:40 p.m.:
"The U.S. government can only make gestures to appear that it cares about the issue: Face it, nobody will bail anyone out. The government simply cannot afford it."

We're the government, Paris. The "government" can afford it. They just print more money, and wreak havoc with inflation, which is a nice hidden tax on all of us.

John

A view held by almost everyone is that home ownership is almost always the largest investment a person or family can make. But for some reason, home investment is supposed to be different from any other investment. If Joe Citizen invests his life savings in stocks and loses, no one comes to his rescue because stock investment is known to be risky. But everyone has the notion that home investment has no risk. So when Joe Citizen loses his life savings because his home investment failed, everyone says that someone should bail him out. Why?

Robert

How much is the payment? What's the rate? Does the payment change? Read the terms. Consult an attorney if you lack the sophistication. How anyone could enter into a six- or seven-figure transaction without solidly understanding the terms is beyond me. It is one thing if a borrower loses his or her job or becomes seriously ill, affecting ability to pay. It is another thing if the borrower simply--and foolishly--makes a bad deal.

Jarred

The government needs to bear some of the responsibility also. A few years ago everybody was complaining that the "poor, poor, pitiful poor" couldn't afford a home so the lenders were pressure by Washington D.C. to give loans to people who they knew could not afford the payments. Now that the house of cards has come falling down, who's going to suffer? The taxpayers, that's who. Those of us who were responsible enough to buy a home that we could afford will now be forced to bail out the ones who were too lazy, stupid, or ignorant to buy what they could afford. And of course since it's an election year, all the politicians (both parties) are tripping over themselves to seize more money from people who earned it and give it away to those who were too stupid to do basic math. The punishment of those who study and work hard to achieve in this nation has to end. The borrowers and lenders who entered into these "high risk" agreements should have to wallow in their own squalor.

TomasC

It is easy to blame mortgage lenders, rating agencies, and greedy financial gurus who engineered too difficult to grasp financial instruments backed by mortgages retrospectively. Although all of them deserve appropriate punishment, at the end of the day, it is the borrower who signed the paper that he was going to commit to pay a mortgage for next 30-40 years, often without reading it and assuming naively that the house price can go only one direction, up. That was the American dream... people dreaming, but not thinking.

Mary

I'm about as financially retarded as they come and know less about investing than I know about brain surgery, but when Countrywide approved me for a loan for $250,000 and told me, "Good news! You qualify and you're payments will only be $1500 a month!" I knew they were crazy.

I only gross $40,000 a year with no other income, and that's before I pay for health insurance, taxes, retirement, etc. It didn't take a genius to figure out that if I paid $1500 a month in a mortgage, I'd only have $500 a month to live on, food, gas, utilities, etc. I couldn't live on only $500 a month.

Although I failed nearly every math class I took in high school, I didn't fall for Countrywide's funny figures or buy into their charade of "If you can't make it on that, you just aren't managing your money very well!" They were pressuring me to take that offer but I knew that 25% of $40,000 was only $10,000 and $10,000 divided by 12 months was close to $750. I wasn't about to pay more than that a month for rent or a mortgage.

If I can't buy a decent house for $750 a month, I'll have to rent or have room mates or something. I'm not proud, and I'm not rich. I said, "No thanks and hung up the phone." For once my mathematically challenged mind made a good choice.

I sincerely hope the houses drop so much in value that I'll be able to move into a nice house for what I can afford, but if they reward the proud and financially illiterate with a bailout, they will only punish regular, simple people like me. Someday, I hope that in America, the underdog with a little common sense can make it. Unfortunately, I'm skeptical of the future and don't see it happening in my lifetime.

Mary

I should add that I explicitly think the borrowers are to blame. No one is more economically challenged that I am, and if I can see monetary disaster from an offer I can't afford, I can't for the life of me see how anyone could fall for the Countrywide crap.

@yahoo

I had a fixed rate 5.375 thirty-year mortage with $154,000 down payment on $359,000. I wanted a new house, not an old 1950 ranch that needed to be restored. Well, no one was building them. I paid $10,000 each year for property built into payment, roughly 2,300 a month. The problem, a market that sold in 10-15 days became years, and years during subprime crisis. What this meant was your home became a boat anchor if you needed a new employer. The costs, my credit score, and ability to work for anyone. I managed to lease the house at cost including a 2nd mortgage used to survive, not being able to afford to own a house in one state, and need to work in another.

Prior to this I had looked at homes with significantly lower prices in PA that sold in 12-18 months. Someone in my same industry with 100% travel accepted a lower offer immediately when made. I blinked because 100% travel had been changing to 100% driving hours to each clients site and from PA I would not survive. Twice a week to the airport was something you could tolerate.

I mention because sub-prime zero percent down, impacted the entire market in a large way. So those of us that made safe financial decisions, and saved for a decade or more to put 20% down still lost everything we worked for. Unfair, maybe, I could have bought a condo cash. My problem, knowing the original prices, and paying double in a short market seemed to be dumb and dumber.

I knew a townhouse from the builder cost 176,000 in 1995, paid 215,000 in 1999, and sold for 319,000 in less than eight (8) hours in 2002. So perhaps I'm part of the problem. Had I stayed in that townhouse it may not be worth the 176,000 today, hard to say.

Which brings up last comment, it always seemed like a scheme how value of properties where determined. My neighbors bank stated 230,000 for a larger townhouse, as mine sold for 319,000 the highest price ever paid at that time. In time, the highest price went as high at 430,000.

I guess the real problem, I was describing a ten year period. The math doesnt add up in regard increased value in such a short period. Greenspan had made references to isolated cases where this happened before, I believe one of the markets was CT. The values went up very quickly, and then people owed more than the houses where worth.

I consider this to be the larger transfer of wealth after oil from the middle east. The benefit of home ownership was largely over stated by people that benfited from many purchases and sales of homes.

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