Yes, as it has been charged by many, various arms of the government did push mortgage lenders toward providing more people the opportunity to seek homeownership. However, many characterize it as "strong-arming" which is, in my opinion, misleading. It's difficult to envision the American banking system being "strong-armed" by anyone, even the Feds.
Mortgage lenders resisted until they discovered that they could make huge profits from such lending. It is the lenders who threw out all of the long standing protocols for processing and approving mortgage loans. It is they who dropped the ball in performing proper diligence in verifying borrower employment, income, credit standing, etc. It is the lenders who largely discarded appraisals, opting instead for "desk top" valuations and the use of AVMs or Automated Valuation Models which are often wildly inaccurate.
As to blaming the borrowers, while it's true that a few understood what was going on and took advantage of the situation to sate their greed, that is NOT true of most of the people who got caught up in this mess.
Most were and are young, expecting or at least hoping to be "upwardly mobile" and wanting to purchase a home – the supposed great American dream.
Hubby and Wifey test the waters only to find that their bank and/or some of the more traditional lenders to which they apply, deny them their quest. Something about a weak credit score. However, someone advises them to seek out a mortgage broker (the bane of our existence,) who can shop around for a lender who will, perhaps, approve their application.
The mortgage broker, Bobby Slick of 'We Saw Ya Comin Mortgage Services,' smiles broadly and invites them to have a seat. He takes their application, sometimes suggesting ways in which to "tweak" some numbers here and there. This may make the potential mortgagors a bit nervous, but Bobby just laughs it off, reassuring them that to do so presents no problem. He does it all the time. Keep in mind that nothing is said to these people about anything called "sub-prime" mortgages.
Bobby puts all of this "data" together, sends it off into cyberspace and then waits like a bluehaired grandmother playing nickel slots at a riverboat casino, until some lender bites. It's a rare occurance if not even one takes the bait. There are usually 3 or 4.
Bobby calls his marks, or, er his clients with the good news: Welendtoanybodywithapulse Mortgage is more than happy to take on their loan request. Woohoo!
Now a few days or weeks pass and periodically the broker contacts the clueless applicants with questions to answer, papers to sign, changes to make here and there – further "tweaks" to help grease the slide.
Our 'wannabe homeowners' are informed that with a convenient 'adjustable' mortgage having an up front low interest rate and consequent low payment, they can step into a lot more house than they originally believed. They don' gotta mess aroun' with that stinkin' 40 year old 1200 square foot, 3 bedroom ranch they been lookin at. Instead, they can go for the big enchilada, and get that glorious new, 2 story, 3000 square foot, 4 bedroom box in "Vinyl Village Estates" they were dreaming about. None of that "starter home" crap for them, by god!
Bobby may suggest to them that the mortgage payment will likely go up in a few years, but that shouldn't be a problem because they will no doubt be making a lot more money by that time as the buyer's "upward mobility" should be kicking in:
Bobby: "Am I right?"
H&W: "Uh, yeah, sure, we guess so."
Bobby: "Of course I'm right! Gotta keep the faith. You'll be king of the world by then!" Right? Right! You know I'm right!
Again, Hubby and Wifey are nervous about all this, and may ask a few questions, but further reassurances from 'The Slickster' and their own giddiness overcome all that. They are gonna grab the American dream by the goddamn throat!
Eventually, the processing gets done. The How Much Do You Need? appraisal company came in with a good figure. They've been approved! It's a go.
A few days later everybody involved in the transaction comes together to sit around a long table in some conference room at a title insurance company or some law firm and watch as these gullible folks sign their lives away. The new mortgagors are happy, a little squeamish, perhaps, but happy. But even happier are those walking out with big checks tucked securely in their wallets. Partay tonite!
Fast forward: Three or five or maybe seven years down the road our happy homeowners get the bad news. Their 4% mortgage has now crept up to 7% or 8% or more. They knew it was coming, but still. The reality is alarming. In the meantime, Hubby hasn't gotten quite the boost in income he had anticipated, and Wifey has not been working owing to the arrival of a couple of little critters. But they're struggling by. She gives piano lessons to a few kids each week, and he's been moonlighting at a convenience store. It's a little rough, but they'll get through it. It's only temporary.
Then, the shit hits the fan. Hubby gets his pink slip. His company has decided to "go in a different direction." His services are no longer required. "Here's a couple months severence. Clean out your desk NOW!!, have a nice life, and don't let the door hit you in the ass on the way out."
Ohmigod! Hubby looks up only to realize that about half or more of the houses in Vinyl Village are sitting empty because their former occupants got pretty much the same news in the weeks and months before his own comuppance. What the hell are they going to do?
Attempts to find another job paying anything similar to what Hubby had been making have been fruitless. He's even been turned down for lesser employment because he's "overqualified." Wifey has started cashiering part time at the local Giganto Mart while Hubby stays home and changes diapers and does the laundry.
The severance runs out all too soon and their income is only a quarter of what they need. They miss a mortgage payment or two because they don't really have enough to pay it, and they needed to pay the utility bills so they'd at least have some light and heat.
They avoid answering the phone. Caller ID informs them that the mortgage company is calling 8 or 10 times a day. Yesterday, their 2 year old Subaru Forester got repossessed. They are left with the rusting 14 year old Mercury Grand Marquis with the bad muffler and the electric windows that don't go up or down that they inherited from grandma's estate last year. It currently gets around 9 miles to the gallon and leaves a huge puddle of oil in the driveway, but, oh well. It's wheels.
Finally, these once proud, happy homeowners are informed that they have 24 hours to vacate the property before the county sheriff comes to evict them. They borrow Uncle Floyd's old pick-up and stuff it and the Grand Marquis hauling out what they can fit into them, leaving the rest. They are reduced to living in his father and mother's partly finished basement. Their American dream is history.
End of Scenario.
Were these people at fault for their own mess? In part, yes. They were not necessarily greedy, but more likely just naive. They wanted a home. They trustingly bought into the bullshit that Bobby Slick and perhaps the builder or a realtor fed them. Their desire to own a piece of the rock blinded them to the possibility that it could all blow up in their faces. Nevertheless, it did.
Commerce largely depends upon the naivete' of the buying public. When it comes down to it, the vast majority of products and services provided to the American market place are things we don't particularly need. Therefore, advertisers are burdened with the task of convincing us to the contrary.
Hubby and Wifey did not NEED to buy a home. They certainly did not NEED to purchase a 3000 square foot monolith for more than they could realistically afford. But, they were enticed into believing that they did in fact need it, and that given the prediction of a rosey future, they came to believe that they could afford it. They were wrong.
Those who lay the blame at the feet of people like my ficticious couple believe unswervingly in caveat emptor – let the buyer beware. Granted, we all need at least a modicum of such caution. But most of us don't assume that well established banks, lending institutions, realtors, etc. – the bulwark of our economy – should be equated with snake oil salesmen. When going after the American dream, we want to believe that the rose colored glasses through which we observe the world is not a distortion. Sadly, we often learn in our dispair that the hue is not rose, but rather, simply the tarnish of lies and opportunism.Powered by Sidelines