Subprime Blame Game - CNNMoney.com gets it all wrong.

Right there on the front page of CNNMoney.com's website, "Subprime blame game.  Some 2.4 million homeowners are in danger of losing their homes. Critics are pointing their fingers at who is responsible - here are the main targets."  Curious, I clicked.  Here is what I found.

1. Mortgage Brokers.  Sure, this one was obvious.  They're taking a lot of heat over selling loans in which the borrower had little realistic chance at keeping up with.
2. Appraisers.  Okay.  I have heard stories of appraisers "meeting a number" set by a realtor or mortgage broker.  Obviously, if this sort of thing is going on, they need to take some responsibility for this mess.
3.  Regulators.  Asleep at the switch?  No question, but I really don't think anyone wants Congress to step in and say, "hold on there pal, we don't think you can afford this loan."
4. Lenders.  Whaaat?  How dare you blame the lenders!  Let's be honest.  What else is going to happen when lending standards are eliminated almost entirely.
5. Wall Street.  Wall Street enabled the purchase of Billions in CDOs.  This money became the lifeblood to subprime lenders across the country.
6. Real estate agents.  Every conversation that I have with realtors contains this sentence, "Let me show you how you can afford $xxx (larger than the number that I stated)."  Yea, they belong on this list.

Not a bad list.  So, why do I say that they got it all wrong?  One question.  Where are buyers/borrowers on this list?  Do they get none of the blame?  You make $50,000 and buy a $450,000 condo because your realtor and mortgage broker tell you that they can "get you in with nothing down, and after it goes up you can refinance"?  Shouldn't we expect the borrower to have a "wait a minute" moment?

Or in the case of subprime refis.  You bought a house in 2003 for $375,000, and a mortgage broker tells you that it's probably worth $500,000, and wouldn't you like to pull that equity out?  You only make $65,000, and your credit isn't very good, but jeez, I could sure use a hundred twenty five grand!  Let's see.  I can pay off our credit cards and car loans.  We can remodel the kitchen.  And we'll still have enough to buy that boat we wanted!  Sweet!

Comments

[Shawn]

Amen brother.

The first level of blame has to go to the borrowers. If they say you can't legislate morality, but the same goes for common sense.

Even if you dumb down the equation and leave interest rates out of it, somewhere someone has to think "I'm in a 450k house/condo with a 1k/month payment on a 30-year. Wait a second, that payment doesn't even cover my principal." or a "no one else has offered me less than 7% fixed, how come these guys are offering me a sliding scale adjustable that tops out at a possible 17%"

I guess we are all just victims.

:)

[MossySF]

This was my first response also. I clicked on #6 thinking it would show "The Borrower".

[AlmostDebtFreeLA]

Didn't you get the memo? The borrowers are now all "victims". hahahahah! What really pisses me off is if their properties continued to appreciate at 30-40% per year they would all be bragging about how they were financial geniuses.

[Deborah]

I teach math and it is so hard to get kids to appreciate the importance of math.

One thing that I've discovered that does help me to moviate them is telling them things I see on the stock market and how poor math understanding has to be to even think of making some of the decisions that happen, and I work through the math with them to show them how to use math as an evaluation tool.

[zen]

I'm in the process of buying a house, and the first thing I noticed was how important that I was honest about my income and my bills.

The second thing I noticed, is when I set my limit on a house price, my realtor continued to offer houses that were $20-$40 grand more (because we can talk them down to a lower price and get a great deal - it's a buyer's market!)

And then when I go to the lender and they tell me how I'm pre-approved for a loan twice as high as I want - and I should take because it's a great investment.

So what do I do? I tell the lender I'm not getting a house that costs that much, and I tell the realtor that if he doesn't start finding houses at my price range, I'm going elsewhere. IMO - I'm a buyer taking responsibility for my actions.

[AlmostDebtFreeLA]

Zen,

The lender and your realtor are paid based on a % of your purchase price and loan value. If you commit to a higher level of debt, they get paid more. Due to this arrangement, they are probably not looking out for your best interest. If you are in California, I would wait to buy. There are so many foreclosures coming through and they will bring down comp values. I actually work for a lender (I know, I know). I can't give you a loan, but I can answer any questions that you have.

[Hazzard]

I agree that homeowners should be on the list right along side the rest of them. They certainly have some responsibility in this.

[Justin Nevins]

At least someone is saying it!

Borrowers have to take some responsibility for their actions.

As a borrower, you should be demanding that you are educated about your loan! If you are not working with someone who can educate you about how to handle this new financial burden, work with someone who can! You should be working with your broker and possibly a financial planner to figure out what you should be saving and spending every month.

As a Mortgage Broker, I know that others in my profession may be part of the problem. Unfortunately, they have adapted to borrowers who rate shop for an eighth off their rate 5 days before closing.

If you shop at Walmart, you are going to get a Walmart quality loan. If you want to watch out for your financial future, work with somone that you trust. They will work hard to make sure you are educated and making good descisions!

[Ross Williams]

Every con-artist in the world can say it was their victim's fault. That "they should have known better." But the reality is that con-artists prey on people who don't "know better", the people who "know better" don't get conned. And in the case of predatory lenders, the lenders understood the risks these folks were taking but they could money off them anyway. So they presented themselves as professionals "helping" these folks buy a home, when in fact they were making an extra buck off them by encouraging them to get in over their heads.

Yeh. Blame the victim. Its their fault that they didn't "know better".

[Ney Montenegro]

I agree with you to some extent.

I am sure some of the buyers went along with the purchase because they wanted to get rich quickly with real estate. But I firmly believe the majority of them were “brain washed” by greedy Spanish speaking real estate agents and mortgage brokers. These people brain washed these families into believing buying a home is as easy as applying for a credit card.

One of the biggest obstacles the Latino community faces, besides the language barrier, is the existence of limited amount of information available about real estate in Spanish and the accessibility to such information.

And for the Latino community is like “Damned if you Damned if you don’t.” The Latino community tends not to trust their financial future to non-Spanish speaking agents for the fear of being taken advantage of, therefore they end up falling victims to greedy agents that speak their own language.

I quoted your post on my page at:
http://micasamidinero.com/myhome/2007/fraud-century21-norma-valdovinos