Stock Ideas 
Stock Ideas Investors Daily Edge The Blame Game Should Involve a Mirror
Stock Ideas Investors Daily Edge The Blame Game Should Involve a Mirror 
Market Watch
| It's perhaps the best-kept retirement secret on Wall Street. On October 1, 2007—just 3 days from today— one Wall Street firm will cut a round of "Bonus Checks" worth more than $4.1 million. Just one week later, another round of checks will be cut for another firm —this time for $115 million. | |
| More... |
Most Popular
Login Form
| The Blame Game Should Involve a Mirror |
| Friday, 01 August 2008 | ||||||||
|
Watching the mortgage industry unravel last year was especially noteworthy to me, as is the current foreclosure and banking crisis that resulted from it. I say this because my first job out of college was working as a loan officer for a mortgage broker in Michigan. I worked there for just under four years, and saw the good (first-time homeowners) and the bad (foreclosures). The ugly? Have you seen a loan officer’s reaction when a deal falls apart at the 23rd hour? Most of the headlines that follow the mortgage collapse seem to focus on the “predatory” lending practices of banks, and believe me, “predatory” is only one adjective that describes the lengths some banks would go to in order to meet production numbers. But one thing that irritates me about the whole fiasco is that very little if any blame seems to be laid at the feet of the consumer, the ones who wanted the mortgages in the first place. Media outlets can trot out the story of the borrower who was “swindled” into signing for a mortgage payment that they could never conceivably afford and the subsequent foreclosure as a result. Don’t get me wrong, that occurred. But that was perhaps ten percent of the sub-prime meltdown in my opinion. The remaining 90 percent of sub-prime loans that went into default were taken out by borrowers that knew what they were doing. When I was writing mortgages, most of my business came from refinances. This is where borrowers would refinance their home and typically take out extra money. Most used the money to pay off credit cards and other loans. In theory, it’s a great idea. In application, it all goes to hell. There were numerous times where a client refinanced to eliminate credit cards, only to call me a few months later, wanting to do it all over again because they ran the debt right back up. Only this time I can’t help them, because they used all of their equity the first time. So now, they have a higher mortgage payment than they started with, used up their equity, and have the credit card debt all over again. Is this the banks fault? No way. The banks aren’t obligated to teach borrowers financial literacy. But it is easier to blame the bank than take a hard look in the mirror.
I know of another case where the homeowners withdrew all of their equity over the course of multiple refinances. If I remember correctly the amount was slightly over $100,000 when the three or four refinances were done. Where did it go? One of the new casinos in Detroit. They literally gambled away their money. Banks fault? Hardly. When they called their loan officer the final time asking to refinance there was literally nothing that could be done. They had zero equity and a falling home value, so they now owed more than their house was worth. These are both examples of the borrower’s own actions resulting in a likely foreclosure. Banks share some of the blame, because during this time period their lending standards were criminally low. But to pin the blame solely on the bank is a mistake. Banks can’t monitor what you do with your money from the refinance, and they can’t require financial literacy classes. In the end, it is up to the consumer to take responsibility for their actions. Christian P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
This investment news is brought to you by Investor's Daily Edge. Investor's Daily Edge is a free daily investment newsletter that is delivered by email before the market opens. It's published by Fourth Avenue Financial, a subsidiary of Early To Rise (an affiliate company of Agora Publishing). In each weekday issue you'll receive practical strategies for protecting your portfolio and multiplying your money. You'll also learn about undiscovered opportunities in emerging sectors and markets, deeply discounted stocks, recommendations for bonds, cash, commodity and real estate investing, and top ETFs. To view archives or subscribe, visit Investor's Daily Edge .
|
||||||||
| < Prev | Next > |
|---|