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Wednesday, January 21, 2009

The Irony and Absurdity of the Meme That Borrowers Were Duped By Unscrupulous Mortgage Brokers and the Crisis Occurred

In response to a previous post of mine, I received this comment.

Your views, although supported by many in D.C., including even the departing Hank Paulson, appear to be totally supportive of the gross negligence and even blatant fraud perpetrated on millions of Americans who were given loans that even law professors don’t understand. These products were invented out of the sheer desire to make as much money as possible in the shortest amount of time by shrewd financiers with a devil may care attitude about the future.

To lay the blame of this financial Armageddon solely at the feet of the millions of plumbers, dental assistants, and auto mechanics who simply wanted a roof over their heads at an affordable price displays a total disconnect from the reality just beyond the Hill of D.C., and just outside of Wall street. Your arguments would be downright knee slapping laughable if the aforementioned folks weren’t being put out on the curb like so many bags of garbage, while at the same time the management of these financial institutions curbing them are parachuting left and right with millions of dollars. Taxpayer dollars I might add. The very same dollars that the plumber and mechanic who are now out on the curb paid to the government in the first place. Having to financially support the very bank that put you and your family out on the street is somewhat akin to being forced to dig your own grave.

Now, in fact, the idea that this was caused by unscrupulous mortgage professionals just like me that manipulated naive borrowers into taking mortgages they couldn't understand or afford is in fact essentially nothing more than a stated fact beyond debate both in the Beltway and in the halls of the MSM. What this particulare commenter is saying is exactly what most in Congress, the President certainly, and much of the news rooms of places like the New York Times say.

Folks like me manipulated naive borrowers into loans they couldn't understand or afford and now they can't pay them back. As such, that is the reason why they need to be bailed out. After all they were merely unsuspecting victims and they deserve consideration as a result.

Here is where such an argument falls apart. First, I have no use for most of the folks that occupy my business. In fact, they have been blood sucking scum for as long as the business has existed. In fact, they have been taking advantage of borrowers for years. Fraud has occurred for years. In fact, all the behavior that those that blame us for the crisis has in fact occurred for years. That is in fact where the argument falls apart. In order to believe that millions of borrowers fell victim to unscrupulous mortgage professionals. Then, these borrowers were put into loans they didn't understand and couldn't, and it was this that caused the crisis. In order to believe this, you would have to believe that mortgage brokers weren't trying to do this since the beginning of time. I'm here to tell you that mortgage brokers always acted this unscrupulously for the most part.

In order to believe that this was caused by massive manipulation of unsuspecting borrowers one would also then have to believe that folks like us acted differently for decades prior. We didn't. Mortgage brokers acted the exact same way over the last five years as they did for their entire existence, like sociopathic scumbags. In fact, to blame brokers and banks would be to give all of us way too much credit. That would indicate that prior to the last five years we acted in some sort of a generally honest manner. The reality is that we didn't.

To believe that millions of borrowers were duped, like the commenter thinks, one would then have to explain why it took until five years ago for this to become a crisis. The term "predatory lending" is not new. So, to blame it for the crisis would require an explanation why predatory lending didn't cause a crisis many years ago.

The reason of course is that many other outside factors came into play to cause this crisis. The market heated so much that lenders began lending to individuals they never should have. These individuals weren't duped nearly as much as they acted irresponsibly.

The explosion of mortgage programs that included many borrower profiles that would never have been approved only a few years ago is ultimately what lead to this crisis. This had absolutely nothing to do with the mortgage broker. I am not saying that mortgage brokers acted responsibly. In fact, I know that mortgage brokers acted irresponsibly. In fact, mortgage brokers often put borrowers into loans they shouldn't have. That's their nature and given the tools they were given, it should surprise no one that the industry acted as they did. It's just that they didn't act any more irresponsibly than they had for many years prior. The business was able to maintain despite this for years, and only when a plethora of new borrowers and a plethora of new loans were introduced did the system collapse. The roots of this crisis is very complicated, but frankly, blaming it on the mortgage broker gives us too much credit. That's because it inherently stipulates that at some point we acted differently than we did throughout it. We didn't.

1 comment:

Anonymous said...

They label and dehumanize a group before they begin there racket.

It is your taxpayer dollars that are given to HUD (US Department of Housing and Urban Development), which in turn give money to NACA - Neighborhood Assistance Corporation of America, ACORN, and other organizations that will call ALL mortgage lenders "unscrupulous", if they feel they can get some money out of them. HUD gives money to ACORN and other agencies like this, that do this and much worse. They (HUD-financed agency) are not regulated either. You need to write your elected officials and request that they REDUCE HUD funding, and cite these as a reasons. It is not just if you are a lender, mortgage broker, or realtor, to be concerned. All citizens should understand what is happening here.

January 09

“Legalized extortion is what I call it,” says Thomas DiLorenzo, professor of economics at Loyola College in Maryland. Under the CRA......"

“The mechanism government decided to use was lower lending standards,” says Stan Liebowitz, professor of economics at the University of Texas at Dallas and adjunct scholar at the Cato Institute, a libertarian think tank. “Government tried to convince banks it was safe to lend with lower down payments and higher obligation ratios. They put pressure on Fannie Mae and Freddie Mac to make these loans. That whole ball got rolling because of it.”