but it is not unreasonable to expect that people should actually understand the very basics of the terms of their mortgage before they “sign on the line that is dotted,” and make the biggest financial decision of their lives.
Yet it is unreasonable, apparently, to regulate a bank to keep it from making the above unethical and deceptive loans.
The incentive of a bank should be to make a loan that is viable. In the past and currently, they do not have that incentive, since they immediately sell the loan off to a third party to be packaged into a pool of risk.
But if your brother had made that decision, it would have been his fault all the way, right? Your logic is: sure, they’re using deceptive business practices, but if you are deceived, it’s your own fault.
How are the loans deceptive? All the crazy, teaser rate, suicide loans were indeed, crazy, teaser rate, suicide loans. The paperwork described them in exacting detail. The used money salesmen pushing them were, in many cases deceptive, but this isn’t like a car that turned out to be a lemon with hidden defects. When the sticker on the door tells you that the Hummer gets 8 miles to the gallon people will not listen with excess sympathy when you complain that you can’t afford to put gas in it. The loan terms that the banks attempted to enforce were the loan terms written into the contract. It is almost impossible to prove fraud when you signed an agreement in spelling out exactly what the terms were. It is not the case that every salesman is a lying sack of shit, but in life, that is a very useful working assumption.
I don’t think that anybody who knows much about the RE bubble and bust would claim that the lenders were not guilty, Especially when we consider the rampant forgery of loan documents to complete foreclosures using mortgages that had never been properly registered in the first place and never had proper endorsements added when the loan was sold and re-sold. Frankly, there was ample evidence to put people in jail.
But if you take your life savings and put it on “black” on the roulette wheel people will think you a fool if when you lose, your excuse was “But Wesley Snipes said ‘Always bet on black.’” You are going to suffer consequences if you do not take at least minimal precautions with your finances. If you don’t understand the loan, you should get somebody to explain it to you. You don’t get to say “heads I’m a genius, tails, somebody tricked me.” Similarly, if you agree to an exploding teaser rate loan with pre-payment penalties, and then paid extra interest so that you could lie on the “stated income” part of the paper work because some agent told you that it was a good idea, you will probably end up suffering.
To a significant degree, politics all over the world is a reaction to European imperialism. Africa would be a very different place without colonialism; China would be a very different place without the Opium Wars.
And it isn’t ancient history; the conflicts of the Cold War are still living memory in the Global South, and Western military interference persists across the world.
Right-wing Islamism was promoted throughout the Cold War at the behest of capitalist NATO governments; it was used as a counter to socialism. Brazil was fundamentally shaped by colonialism and slavery, and was further twisted by the USA’s century of support for right-wing governments across Latin America. Korea, north and south, are still heavily influenced by the apocalyptic war that was inflicted upon them seventy years ago and the state of siege that has existed since then. Etc.
This isn’t to imply that these nations have no agency of their own; they do. But the disastrous global impact of European imperialism, indigenous genocide and the Atlantic slave trade fundamentally shaped the modern world, and the consequences of that are still in motion.
How are the loans deceptive? All the crazy, teaser rate, suicide loans were indeed, crazy, teaser rate, suicide loans. The paperwork described them in exacting detail. The used money salesmen pushing them were, in many cases deceptive, but this isn’t like a car that turned out to be a lemon with hidden defects. When the sticker on the door tells you that the Hummer gets 8 miles to the gallon people will not listen with excess sympathy when you complain that you can’t afford to put gas in it. The loan terms that the banks attempted to enforce were the loan terms written into the contract. It is almost impossible to prove fraud when you signed an agreement in exacting detail telling you what the terms were. It is not the case that every salesman is a lying sack of shit, but in life, that is a very useful working assumption.
I don’t think that anybody who knows much about the RE bubble and bust would claim that the lenders were not guilty, Especially when we consider the rampant forgery of loan documents to complete foreclosures using mortgages that had never been properly registered in the first place and never had proper endorsements added when the loan was sold and re-sold. Frankly, there was ample evidence to put people in jail.
But if you take your life savings and put it on “black” on the roulette wheel people will think you a fool if when you lose, your excuse was “But Wesley Snipes said ‘Always bet on black.’” You are going to suffer consequences if you do not take at least minimal precautions with your finances. If you don’t understand the loan, you should get somebody to explain it to you. You don’t get to say “heads I’m a genius, tails, somebody tricked me.” Similarly, if you agree to an exploding teaser rate loan with pre-payment penalties, and then paid extra interest so that you could lie on the “stated income” part of the paper work because some agent told you that it was a good idea, you will probably end up suffering.
“How are loans deceptive?” You really don’t know? How are contracts deceptive? How are EULAs deceptive? How are human beings deceptive?
As for your apparently laissez-faire argument: We don’t just need government to make bad things illegal. We need government to remove incentives to do bad things in the first place. Eg: banks should be responsible for the loans they make and shouldnt be able to hand them off to risk pools.
Your brother-in-law was almost caught by this trap. And instead of it being a cautionary tale with a moment of clarity (“this almost happened to my family”), it simply becomes an opportunity to show how smart you are and how the system is functioning as it should.
Your position of privilege is obvious in the derogatory tone you take with people suffering from financial hardship.
There’s a reason 2 year interest only adjustable rate mortgages (and the like) were only given a single paragraph in my initial reply. To say investors and financially irresponsible home buyers are the only ones who got fleeced is incredibly obtuse.
Working families who had to pay for vehicle repairs, forgot about an automatic $25 credit card payment and got an overdraft, who didn’t get paid for another week and whose bank charged them $10 per day they had a negative balance, whose credit card company charged a $27 late fee and $25 return payment fee, causing them to go over their limit and receive a $35 overlimit fee, and then went into their bank account to take payment in full once payday rolled around…
Oh fuck where did the mortgage payment go? How the fuck to keep a roof over the family’s head in the winter?
There were many instances of the above, where a customer would bank, credit card, and home loan with the same company. There were many instances of lenders stalling on financial hardship programs until a borrower was in foreclosure.
Some borrowers even saw the writing on the wall ahead of time and tried to get out, only to find lenders refusing a 3% short sale, and charging forward with a full foreclosure simply because the borrower couldn’t pay back a few thousand dollars of the mortgage after selling the property.
The problem with these is NOT that contracts are deceptive. They generally do NOT imply one thing while meaning something different. The generally spell everything out in excruciating detail. Indeed, you can’t really complain that at EULA is deceptive if you never read it. The problem is that people do not read them. I fear that the prevalence of EULAs has made people blase about signing contracts. It is unreasonable to expect people to read 60 pages of legalese to download a tune from apple or a game for you xbox. But a mortgage is serious financial decision. To be unenforceable, a “contract of adhesion” has to be “unconscionable,” which is a very high bar. Again the salesmen are often deceptive but that is almost impossible to prove.
Now here you are much closer to the point. Indeed another place where fraud was rampant was in the appraisal process, because the mortgage brokers hired the appraisers. Really appraisers who didn’t “hit the numbers” and give a high appraisal to the houses were unlikely to get much repeat business. The “loan-to-value” on the mortgage became just a box that had to have a certain number in it rather than protection against loss in case the lender had to foreclose. And this was because mortgage brokers had no skin in the game.
It was HARDLY functioning as is should. The RE bubble was evidence of that and the crash and the great recession were proof.
Yes I have been fortunate in several ways: I graduated High School at a time when college was still relatively affordable. Unfortunately, over the last ~20 years or so, the price of a college degree has skyrocketed as the finance industry has enabled sky high tuitions by lending ever greater amounts of student debt. My college roomate got foreclosed on a few years after graduation, making me VERY paranoid about getting a mortgage. I finally bought my house in '99 which turned out to be perfect timing in the RE market. I watched as the RE bubble inflated prices beyond all reason, thinking “That can’t be right,” as indeed it wasn’t. I lucked into a stable job with decent benefits. I have been healthy, and in the US a health emergency has the capacity to put just about anyone in financial penury.
But it is also true that I have always lived within my means. Throughout my 20s that meant that I always lived with others, either sharing an apartment or a group house. I have never bought a new car. I generally don’t spend much on clothing or eating out. So during the bubble when we had 20 somethings buying houses for $450k I had to wonder how that was possible. And that was only possible with crazy teaser rate negative amortization mortgages. Those kinds of mortgages have idiots on both sides of the transaction. It was only the insatiable demand by the financial companies for mortgages to pool and tranche and the illusion fueled by nearly a decade of falling interest rates that these loans would be paid off by a refinance that made these loans available.
If there is a puddle of brake fluid underneath the car, and a big sticker on the door saying that it is being sold “AS IS” perhaps you should continue to take the bus rather than buy it. That’s the thing, people can continue to rent if they aren’t in a good financial position to buy or at times when the prices have gone crazy. Certainly during the later parts of the bubble prices had risen so much higher than rents that purchasing made no real sense, except as a bet on further appreciation. I’m not absolving the banks, but I am also not absolving people of making a a really bad economic decision. Bad luck can always be made worse with bad choices.
I don’t understand this. A short sale and foreclosure are treated the same on one’s credit report, as a defaulted loan. Yes, the loan servicers were slow to approve short sales, that is because they simply didn’t have the staff to deal with the number of delinquent loans that they had. Short sales are just a way for the bank to save the cost of foreclosing.
This article misrepresents what MERS actually is. One cannot transfer ownership of a mortgage or loan to MERS. Mortgages are not converted to MERS. Mortgages cannot be assigned to MERS.
MERS is simply an electronic database of mortgages where lenders, mortgage holders, and warehouse banks can store information about the status of a loan. This allows other companies to check the loan assignee, service rights, and general quality so they they can determine if the loan is worth buying/trading.
Well I think in turn that is a bit of an oversimplification. Yes, the originator was supposed to keep the paperwork, to be updated as needed. But in many cases that didn’t happen. And when that little problem was brought up during foreclosure actions, the lenders doing the foreclosure often tried to maintain that “of course” the mortgage (the right to foreclose on the property in case of default on the loan) automatically followed the loan on it’s trip from broker to bank to securitizer to bond pool. Servicers became accustomed to foreclosing on the basis of spreadsheets stating non-payment and tried to persuade courts that “We’ve always done it this way,” despite the fact that MERS was new and legally untested. And in many case they continued to get away with this because they were unchallenged by borrowers that really were in default so they didn’t bother to hire a lawyer to contest the action. And in the cases where they were challenged, they hired companies like LPS to “find” (forge) the proper endorsements on the mortgage.
All of which are actions of the lenders and the mortgage holders, none of which should suggest to anyone that a loan can be “converted to MERS” or that one can “assign the mortgage back from MERS to IndyMac” in the sense that MERS possess a beneficial interest in the note. It does not. This is not a true assignment in any sense other than as a nominee.
MERS simply tracks the mortgage for its members as it is transferred from bank to bank. That’s it. The “assignment” is simply a way for lenders to designate MERS as a nominee for the lender. MERS then acts as an agent for the owner of the loan. Once the loan has been “assigned” to MERS in this manner, the loan can be bought and sold any number of times later without recording an additional assignment.
Well yes, MERS was always very careful to never actual have a beneficial interest in the note. And there’s nothing wrong with having a simplified way of recording where the payments go. The problem is that many seemed to regard them as a substitute for having a real back office crew keeping track of the actual mortgage and the endorsements required. Lenders really tried to use MERS to handwave their way past longstanding state legal requirements. MERS was clear on what they were not, but the banks often claimed that they were something else. And they got away with that often enough that they were caught up short in the cases where courts actually wanted to see the documents supporting foreclosure actions.
You cannot purchase a home with a negative amortization loan.
I don’t know what kind of line you’re repeating, but your constant harping on consumers suggests an MBA and a career focused in financial services.
The white male bootstraps you pulled yourself up by (coupled, I’d wager, with solid support from family) don’t negate your talent, nor your years of education and hard work.
But they do make your victim blaming pretty maddening. The entire point of this article and my comments is that there really are victims here. The great depression was not caused by NINA (no income no assest) financed amateur flippers, who only came into play when the bubble was nearly ready to burst and warning signs were everywhere.
After pointing a finger at toxic lenders, loan officers, appraisers and the forclosure process… it seems to undermine your premise that you circle back around and point the strongest (middle) finger at consumers, a large portion of which were first time home owners.
You could during the bubble. Those were fairly common in the bubbly parts of California, where median house prices were INSANELY unaffordable with conventional, fixed rate mortgages. They went under a bunch of different names. (eg Pick a pay, option mortgages, or anything advertised as a 1% mortgage!!!) Of course when the balance grew to something like 105% or 120% of the original loan amount they recast into an amortizing mortgage for the duration of the loan. Many people were confused by this and thought that payment shock was driven by a reset in the interest rate that they were paying, when in reality it was that they had been deferring interest for the first year or two of their loans, only to see it added to the principal that they now had to pay off in 28 years instead of 30…
A contemporary article on negative amortization loans https://money.cnn.com/2008/09/02/real_estate/pick_a_poison/index.htm
The housing bubble really had two phases. Through about 2003 the price hikes were driven by lowering interest rates. But after those hit bottom, price rises were driven by ever worsening loan terms and conditions.
Outside of really overbuilt areas like the Inland Empire in California, or parts of the market in Florida (especially condos) flippers were not all that significant, although there were a couple on my street, in a working class inner suburb of DC. Certainly there were not enough flippers for the RE bust to cause the Great Recession. Most of the foreclosures were probably house that people lived in, although that is somewhat difficult to tell because the Casey Serin’s all CLAIMED on all of their mortgage applications that they were owner occupiers.
All of that and more. You haven’t even mentioned the captive rating agencies that signed off on the toxic alchemy that the finance industry managed to create AAA bonds out of bad mortgages that should never have been written. Combined they managed to create a system that could only fail with nationwide decline in house prices. And then ran it HARD until they forced a nationwide decline in house prices.
You say that I am victim blaming, but the problem with re crash was NOT that house prices crashed. The PROBLEM is that they got too high for most people to afford to buy houses with sane mortgages. The PROBLEM isn’t that borrowers were foreclosed upon because they couldn’t make their mortgage payments. It is that they were able to get mortgages that they had no reasonable expectation of being able to carry to term. Many of them might have been ready to buy a house after a few years of saving up if the prices had been reasonable. But prices shot up so fast that most potential buyers felt that they had to buy NOW or be priced out forever.
At a deeper level the real problem is that after years of the GOP telling us that there is too little investment, Wall Street has more money than it can find productive uses for. So much of it has been lent out to consumers, as credit card debt, mortgage debt, student loans, auto loans etc. And years of lowering regulations on banks made it much worse when the crunch came, and people couldn’t service all the debts that they had agreed to.
None of the above. But back in ~2002, when house prices were rising at rates far higher than wages or other prices, a few of us, rather that thinking “I’m RICH,” were thinking “Wait, that can’t be right.” And started hanging out on sites like www.thehousingbubbleblog.com or https://www.calculatedriskblog.com/ The compleat ubernerd posts by Tanta at calculated risk are a thorough, surprisingly funny, inside look at how the mortgage business had changed in the time leading up to the crash and well worth reading.
I’m not sure why people seem to think that I am some sort of apologist for the finance “industry.” If you believe that bad loans were the reason for financial crisis and subsequent great recession, than THESE ARE THE GUYS THAT WROTE THOSE LOANS. You pretty much have to assign the greater part of the blame to the people that wrote and approved all those loans that were pretty obviously likely to go bad. They knew the law and had access to a ton of information IF THEY WANTED IT. Instead, they created a whole series of obviously bad* loan terms and then compounded the problem by combining them: “and here we have our no-doc, teaser rate adjustable mortgage. But don’t worry, the appraiser we hired says that the Loan-to-value number is good.”
Even as we assign most of the fault to the banks, it isn’t right to absolve the borrowers of all “guilt” simply because they are more sympathetic. I think that almost all of them understood the central fact that if they failed to make the payments, the bank would take the house back. Which means that they certainly SHOULD have understood the basic facts about the payments that they were agreeing to: when the payment could go up, and by how much. That is actually part of the information that legally has to be provided to borrowers in simplified form. But many borrowers gambled that they would be able to refinance at the expiration of the teaser rate. And that worked pretty well for many, until it stopped working with a BANG. They too, were betting that appreciation would save them.
*And I don’t mean “bad” in a moral sense, although they certainly were that. I mean bad in the sense that they were more likely to have the loan end in default. But when interest rates were falling and price were going up, default rates were low, so they drove the bad debt wagon into the wall at maximum speed.
