To be sure, there are many causes of the housing crisis - lenders who allowed people with spotty credit to buy homes with little or no money down, mortgage brokers who focused on selling loans without regard to the borrowers’ ability to repay, investment bankers who bought and sold risky mortgage-backed securities.
But wait a sec….. isn’t someone missing from the list?
How about the borrowers that didn’t exercise enough common sense to avoid biting off more than they could chew!
I don’t think that bad appraisers, lenders, or bankers should escape scrutiny. But why give bad borrowers a free pass? They’re just at fault. If there were no bad borrowers, there would be no bad appraisers or lenders either.
Jeff, I completely agree that we should not give borrowers a free pass. As a banker within the financial industry I take full disclosure to heart. However, I also know that there are unscrupulous individuals in the industry and at times they are financially motivated to act in their best interest rather than their client’s best interest. This fact is also compounded by the lack of financial education. Although it is clear to recognize that you have bitten more than you can chew, when you are depending on someone’s expert advice and really you don’t know better, it is easy to be persuaded to sign on the bottom line. Jill
JackandJill: I think we’re mostly saying the same thing. It’s partly the fault of bankers/brokers/appraisers and partly the fault of borrowers.
There are a lot of times in life when we have to rely on experts’ advice. If a decision is important, it’s a good idea to educate oneself and exercise some common sense. For example I trust my doctor’s advice on most health issues more than my own. But if my doctor says I need to undergo a treatment that will take up 50% of my after tax income for the next 30 years, I’m going to get a second opinion.
There are certainly some innocent people that got swept up into a bad mortgage based on someone’s bad advice. But innocent is different than prudent. I feel bad for the innocent people, but only to an extent. It’s hard to feel too bad when they had complete knowledge of their own financial situation, inititated the process of buying the house, had complete control over the process of getting a mortgage, and had complete freedom to shop around and get a second opinion.
I think there were certainly some shady loan officers out there. But at the same time a lot of borrowers were lying about their financial status. Some borrowers were even buying 4 or 5 properties and having them close on the same day so lenders would not find out about the different loans. I think at times the issue is framed where the loan officers were the bad guys but I think its more complicated than that. In some cases they were but in other cases the borrowers were pushing the envelope of what was legal.
Good post, but have you thought that how these housing crises can be diminished?
I think lender should properly investigate and verify repaying ability of borrower before granting any loan to minimize mortgage crisis.