Second Mortgages: Why Absolve Consumers for Stupidity?
Paul Kedrosky
About this author:
I know that many people are nodding in dizzying agreement with an NYT piece today about how second mortgages in America went from verboten to 'vonderful, but I'm going to demur on the love-in. Sure, there is a great story here somewhere -- second mortgages rose remarkably in prominence over the last twenty years -- but saying that the root cause was sneaky mortgage marketers snowing stupid consumers is grossly trivializing and oversimplifying things.
For starters, I don't accept that mortgage marketers get so much of the blame. Sure, they exaggerated the merits of second mortgages etc., but if we're going to start indicting marketers for exaggerations -- even doozies -- there is a long, long line of such people out there to point to, from weight loss products to golf equipment to erectile enhancement thingies.
Matter of fact, you could argue that boundedly rational people responded fairly predictably. They saw that home prices had been rising for some time, and that they had equity in their houses and could cut payments and take money out of their real estate, and so they did it. Is it so surprising that mortgage marketers saw that happening and responded to it? I don't think so.
To me, this is another example of absolving consumers of responsibility. It's not my fault; it's those evil mortgage marketers who did it to me! I am tired of that sort of thing. I am tired of the line of argument that says consumers responded stupidly to what was happening in real estate markets, goaded, in large part, by evil mortgage finance companies. That argument is too convenient by half.
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This article has 15 comments:
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JasonC
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367 Comments
Aug 15 01:21 PM-
jegan ;-)
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768 Comments
Aug 15 05:49 PMjegan ;-)
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madasiwannabe
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98 Comments
Aug 16 07:09 AMA lot of people had fun burning through false equity and now that the party is over, the harsh reality of the morning after hangover is here. Defaulting on a contract doesn't erase the obligation. When the property is sold, there will be a bill for the difference to follow. Time for the irresponsible to settle their bar tab and don't pass the hat to me, I stayed home...
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bernie52
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1 Comment
Aug 16 11:20 AMAs to why we have such a weak foundation to battle the glittery perception of FREE goes to the worship of materialism that dominates our current western philosophy. I am reminded of Warren Buffet who in amassing great wealth has always shunned the worship of materialism. Mr. Buffet uses his talents and intellect to win the financial game on honest terms that do not distort the place of his accomplishments in the story of humankind on this lonely planet.
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whisperonthewind
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234 Comments
Aug 16 11:41 AM-
ArnoldCountry
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65 Comments
Aug 17 02:29 PMCapacity is the ability to pay back the loan. Collateral is equity. Credit is the credit standing of the person borrowing.
But do not lose sight on which ones are most important... Capacity and Collateral.
You are clearly seeing today that many consumers lack the capacity and collateral to support the loan. You may make the "personal assessment" of personal responsibilty but this is business and the risk of capacity and collateral was always a known risk by the lender. They are impacted today by their risk, not deadbeat consumers. Clearly, if consumers had the collateral and capacity, this would not be an issue which is why it is always a risk for lender!
If I was a consumer in this situation, my first responsiblity would be to provide for my family.
As a consumer, I would do whatever is lawful and best for me. Here in the 9th Circuit, consumers can strip seconds lawfully in a bankruptcy. It is time for consumers to look at all options and take those that are lawful. On the flip side, lenders should do the same. This is business, not personal responsiblity.
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Jimmy Lathrop
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269 Comments
My Website
Aug 17 06:39 PM"Credit Risk Analyst - Major Mortgage Underwriting bank seeks CRA for its Second Mortgage Division. Five years experience, MBA or advanced degree in economics preferred. Experience in outsmarting wily homeowners preferred. No experience in appraisal review or income documentation needed. Salary six figures, paid for by shareholders who do not understand bank's structure or balance sheet. Nonconfrontational or passive resistance to underwriting and sales desk preferred. Job security backed by the full faith and credit of the American Taxpayer. Contact J.Dimon@chase.com for further details. EOE."
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neeb??
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97 Comments
Aug 17 07:25 PM-
youngolf
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25 Comments
Aug 18 08:29 AMNow, all are suffering. The real blame is Greed, as usual. This is the American system...stick it to them and get yours, regardless.
We have lost our moral compass. I fall somewhere between capitalism and socialism. Allow freedom, but heavily regulate and punish those who attempt to take advantage.
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joefromnewyork
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1 Comment
Aug 18 08:35 AM-
Polabair
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7 Comments
Aug 18 09:59 AMA long line of exaggerating marketers...how about a long line of public executions for those folks with so little regard for their neighbors.
Jason: NO whining in that line!
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iThinkBig
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1061 Comments
My Website
Aug 18 02:35 PM1) "Always save your pennies for a rainy day."
2) "Never trust a banker, they love foreclosures"
I assume if I heard this advice and followed it, then others heard it as well.
Either way, the largest grievance I have is that as a visible, responsible taxpayer, I will get a hefty portion of the irresponsible's and greedy's bill. I didn't live in a McMansion and nor did I buy six more yachts to waterski behind.
For that, I will not forgive and forget the Legislators colluding with the the Thieves at the top levels of iBanking that are forcing the tab down my throat.
As for the American sheeple in McMansions, the NINJA loaners, house flippers and stupid, they're property will be confiscated and sold to the lowest bidder and that is happening en masse. The biggest winners of this economic tragedy are Washington Fascists, iBank Ceo's, the myriads of Brokers making 'fees' for little or no value, the Lawyers. Oh yeah, it's been a long election cycle, let's not forget to add the ILLEGAL ALIENs, receiving $30k each on average. No, can't forget them either while the entire population must obey the law while all of these mentioned don't.
I do feel bad for the parents of families that lived within means and still lost much in terms of devalued monetary policy/invisible taxflation. Very disgusting management in our U.S. government and banking system. Hard working Patriots will be taking over soon, but not before the Washington chronie capatalists fleece what's left of the Middle Class as 45% of our population get entitlements and the rich will expatriate and hide there wealth effectively.
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FP
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5 Comments
Aug 18 05:56 PM-
Abraham
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6 Comments
My Website
Aug 18 10:21 PMSo I trust me and feel like an ENEMY within my own country. Why? because of the enmity of all the players in government and the FIRE sector. Luckily I have the means to tell them where to go. But they try to work me, plead with me lie to me and CURSE me, because I am not a sheeple idiot who owes THEM a living.
I am intelligent, but could have easily succumbed to the bleating of MOST all the medias finacial adivisprs from Suzie Orman who actually WORSHIPS debt. My FICO is ZERO---I HAVE NO DEBT. In her estimation I am a bum. I get this hatred every day. I understand why sheeple and doofuses fall for the REALTOR lies the banker lies.
I recently asked a banker this question (Bank Of America). If I bring in $100,000 in cash to put in a savings deposit account what is in it for me? banker> "YOU don't want to do that---You are throwing YOUR money away. No I am throwing my money away if I let YOU loan it out through some scheme. Bottom line BOA pays 0.24% on passbook savings. That means out of $100,000 of hard earned cash taxes already paid on it ---Bank of America will reward me with $250 AT THE END OF THE YEAR. How many middle American have $100,00 lying around? I do lots of it. So Mr . Bank Of America you will pay me the equivalent of 231 McDonalds Cheeseburgers for letting you "take care" of my money for one year? Wait, but you will charge me a fee of hundreds of dollars for a meager $1,000 loan?
No way. You see BANKS are no longer banks. At one time they were like the old stodgy Smith Barney TV ad. Today they are like payday loan outfits. I saw a report that sais some mainstream banks charge up to 56% PER YEAR interest on credit card loans.
It takes TWO to tango. I had my Lat dance with banks. So, in your theory am I the bad guy? I don't think so. That why are savers like myself vilified in the press by the likes of Ben Bernanke, Hank Paulsen and The president of the United States? Remember President G Bush's nasty comments about people who would save their "rebate checks"? So look at me---old car --old clothes -- no plastic and hated because I AM NOT A DEBTOR . Please rethnik your idea. It is hell living in a world where a saver BECOMES THE ENEMY! Its ;likke people think I am a communist because I don't believE the lies of commissioned salesmen and the banking world. They just better hope they don't ask me for help someday!
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Abraham
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6 Comments
My Website
Aug 18 10:34 PMYes its true there are stupid consumers---but I am not one of them. Why do banks hate us savers? EXPLAIN THAT THEORY! because they are cheaters and liars. The Clinton whitewater story should have been enough witht eh S&L crisis. Now we must PUNISH ALL those who should have known better. Lets start investigating them with Grand Juries, Congresssional hearings and local Attorneys General. I want to see the European banking rats run away from the scrutiny of the KLIEG lights of government investigations of ALL parties involved. I will watch eat popcorn and get ready for the prosecutions.