AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

Hey Scott:
 
Your article is a joke. And typical of what is going on in the media at this point.
 
I've been in the mortgage business for 25 years. During that time I have NEVER dragged anyone off the street and compelled them to get a mortgage. NEVER. They call me! Understand? They call me!
 
I'm not disputing that the non-existent underwriting standards of the last 5 years or so were a mistake. A joke. Insanity. I've been scratching my head for 5 years wondering just what the heck was going on here. But that does not change the fact that the responsibility of signing a mortgage at a closing is that of the BORROWER!
 
It is legal to go into a bar and get drunk. As drunk as you want. It is your responsibility not to get behind a wheel of a car at that point. Yet people do it.
 
I realized from the beginning that we (mortgage brokers) were going take the blame for other peoples stupidity. That's just the way it is in the United States. It's always someone else's fault. But its wrong. Period.
 
Why don't you have the nerve to blame the people truly responsible for the mess? The public. The public that overspends, undersaves, and acts foolishly.
 
The hangover is here....and close at hand. But it is the fault of the people who put the drinks to their lips. Not the drink or the bartender!
 
BK

BK,

Lenders, by now, know that some portion of the population is either clueless about handling debt or excessively optimistic.  Low interest rates alone were not enough to cause this crisis. It was the combination of low interest rates that would inevitably reset higher, zilch in down payments, and lack of credit standards. The lender is the one who sets those standards. If he lowers the standards, the result will be bad loans.

Had those loans been held in portfolio by lenders it is possible standards would have been higher, but the securitization process encourages low standards and what some call The Toilet Assumption: Flush it, and it will go away.

So, sorry, the folks to blame are the unrelentingly slow learners  in lending.

Scott

I read this article in my sunday paper and wanted to write you then. But didn't. Now I see the same article on MSN and I can't help but point out the obvious: nitwit borrowers. Your articles are appreciated, by me, and I am sure by thousands of others. But be honest. People wanted to have their cake and eat it too. We complain about all sorts of things, subprime loans, shoddy housing construction, etc. Yet, when we point one finger of blame there are three others pointing back at ourselves. I was a home builder for 25 years and trying to sell higher quality built homes to anyone other than the rich was tough. I generally had to eat the extra costs. No one wanted to pay more than the "going rate."

Nitwit borrowers certainly share some of the blame.

But Nitwit borrowers can be held at bay by exercising some minimal credit standards, such as requiring a down payment, not allowing a 105 percent loan to value ratio, being able to document that you have the income necessary to make both the initial lo-ball payments and the reset payments, etc. That’s the job of lenders.

 Failing to have some kind of credit standards is the fault of the lenders. They are also the ones that have a body of knowledge and past experience. Many borrowers lack both knowledge and experience, witness the home flippers interviewed in all the glossy personal finance magazines during the boom.

Scott

The bar analogy in BK’s self-deceptive, amoral post above was brilliant.  Many states have recognized the probability of drunks and near drunks exercising poor judgment is unacceptably high.  Consequently, bartenders carry not only a moral but a legal responsibility to ensure their customers do not leave so impaired that they can’t get themselves home safely - in fact, in some localities the bartender is obligated to summon a cab.  It’s a shared responsibility, in both a legal and ethical sense … even if the bartender is drunk, too. 

 

If lenders and financiers are incapable of establishing and self-enforcing appropriate lending standards (as they have demonstrated repeatedly), perhaps they, like bartenders, need better, explicit regulatory and legislative standards … and accountability.  While not a particular fan of government regulation, I am sick and tired of paying (through taxes, investment losses, etc.) for the repeated excesses of the lending industry.

 

It seems as though over the last 25 years we have systematically disassembled the regulations put in place after the Great Depression to protect both the finance industry and the public from themselves and replaced them with indecipherably intricate webs of REITs, re-sales, etc. which appear to only reduce risk for the executives of the very largest companies.  If you can get big enough and spread your cancerous product far enough, the Government will have to bail you out – and if you’re a really “good” executive, you’ll get a bonus for that, too.  Rather than spreading the risk further, perhaps our system needs the capability of a well run electrical grid: to compartmentalize and isolate serious problems before they threaten the whole system.

 

My only criticism of Scott’s column is that his lessons did not include the apparent need to protect the industry from itself.

 

 Compliments to you for your factual article of August 13,2007 ""It's another replay of Nitwit lending"".This email is from a 2nd.W.W.,U.S. Navy veteran and a depression era survivor.
         Financial institutions always have looked for ways to get their hands on the general populace wallets, ""owned by the company store"".I have the title to our home and spent 30 years with one company while acquiring the funds to achieve this goal.I've had hundreds of offers to borrow money on our home and to enjoy life with the money.I've always told the story to my children about living out of an old automobile in the 30's with not enough to eat.Still today,I tell them ""never jeopardize the roof over your head""
"" Rome was not built in a day and neither will your dream world.Even to this day I receive offers to reverse mortgage our home.Another Nitwit attempt to control your wallet and life.Thanks again for your great and truthful article.

Mark

Mark,

Thanks for your note.

We’re different generations, but cut from the same cloth.

My children are shocked when I tell them stories of my early childhood. They can’t believe that I once lived in a house without indoor plumbing or shared a rented room with my mother  or that my uncle was so poor that he lost his children after his wife abandoned him and the children.  In one sense I’m delighted it’s so unbelievable to them.  In another, it makes me fear that they are naïve about what can happen.

Scott

Althogh the sub prime lenders are not to blame the root cuses for this meltdown sure grew from their liberal practices.  

One year later Scott Burns sounds quite prophetic