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"Recently disclosed e-mails and documents give the clearest evidence yet that high-level banking officials pushed subprime mortgage loans knowing some Detroiters couldn't pay them — helping spark a foreclosure crisis that devastated the city during the Great Recession."
http://www.freep.com/story/money/bus...nley/22286935/
Where were the regulators in the Bush administration while this was happening??
Good article. It was also a double-edged sword as there was a demand for more home financing options for those who could otherwise not afford a home. At the front-lines of seeming accessibility some of the store-front mortgage trolls, sensing the scam end was near - just before turning out their lights the last time - ditched their creative 'paperwork' to the banks, etc. Couple this with the balloon payments, rising PMI's and ski-high escrows: many could not pay.
What was even worse were those who had home paid for [[free and clear), or nearly paid who entered into the fast-money muck and fray. Suddenly they were jacked! If you were smart you knew nothing is for free and you held off and kept your home as it was, yours.
It was so corrupt on the ground level I heard of a re-fi situation where the so-called mortgage 'agent' split the loan on a house with the seller as extra fee for extra 'creative' paperwork! Incredible. The individual lost their home and the store front Mortgage company is long closed.
If banks don't offer products to low-income residents, then they're accused of hating poor people because they won't loan money to them. If banks offer products with higher interest rates to reflect the increased risk of the mortgage, they accused of hating poor people because they "screwing" them.
If a bank made a loan that they felt the person couldn't pay, then shame on them, they shouldn't be doing that, and the bank probably took a haircut on the loan in foreclosure.
Let's not forget about the responsibility of the home owner to not get a house they can't afford. Due diligence should be done on BOTH sides of the transaction. Banks shouldn't make loans they think won't be paid back. And people, who know their financial situation better than any bank, should not be getting themselves in bad situations.
I feel much more responsible for my financial situation than any bank or mortgage company I've done business with. I know the terms, the monthly payments, etc...
I am responsible for me, and the situations I put myself in, and the contracts that I sign.
Agreed. It worked out if you were mostly solid in terms of your abilities to pay. But 'ultra' creative paperwork was plied to those who didn't stand a chance, period. You buy, you pay... EVENTUALLY. I blame in a way the slick oil-tongued lenders and their legion of 'suddenly' licensed mortgage writers peddling loans like free candy. If the terms had been correctly and HONESTLY explained some would have walked away, but it was made easy, too easy.
When all this easy loan/ mortgage 'circus tent' stuff rolled into town we agreed to IGNORE the zillion phone calls and direct mail solicitations, etc. and most of my friends and family retained their homes. It was such an obvious scam IMO. A scam where many were engaged in kick-the-can-down-road behaviors with huge consequences.
I want to know WHY the bank made such irresponsible loans? Did they not believe they'd get burned OR did they believe maybe the BORROWER would get burned but NOT them?Quote:
Originally Posted by 48307
E.g., someone buys a house for 100K and has a mtge they probably will not be able to afford in the out years [[a few years). Was the bank 'gambling' that that house might be worth 150K in a few years and that they would not get burned in a sale? [[If there was a lot of equity it shouldn't be a short sale or foreclosure).
I assume the banks thought of it as a Ponzi scheme where the guy paying 100K for the house would be okay, but someone a year or two paying say 150K might be at risk of a falling or stagnant housing market.
I would not describe this article as "well-written." The author mixes in racial overtones [[for effect?) and confuses loans made by New Century and the ultimate loan buyer in this case [[Morgan Stanley).
Let's start with the first one:
The new documents were revealed in a potential class action by African-American Detroit homeowners against Morgan Stanley, one of the nation's largest Wall Street investment firms. The lawsuit, Adkins et al vs. Morgan Stanley, alleges the high-risk loans in 2004-07 were racially discriminatory because they "disproportionally impacted" thousands of metro Detroit black borrowers.
I know that a Texas case on "disparate impact" in HUD activity is before the Supreme Court right now. Apparently the author doesn't, or doesn't think that's important. Secondly, if a) one makes loans aimed at low-income, credit-restricted borrowers, b) one's business is located in an area where there are a disproportionate number of members of one race, and c) a disproportionate number of one race happen to also be in the low-income, credit-restricted category, it would probably follow that one's loan are disproportionately to that subset. I don't know how a professional organization cannot ask or address that question: Did the loans target African-Americans, or did they target the poor, who, in this area, tend to be disproportionately African-Americans? The author may have missed that, but the judge won't.
Next, let's try this one:
To be sure, mortgage loans are a two-way street with borrowers agreeing to payment terms. But the new evidence unsealed in the lawsuit helps answer a central question of the housing crisis about whether high-level bankers knew the full extent of high-risk lending that led to an epidemic of foreclosures in Detroit and other cities.
First, the lender has much more at risk than the borrower. So if New Century [[remember, "Wall Street" isn't the lender here, it's a company in CA) makes a bad loan, they are putting their own money at risk, and Morgan Stanley put theirs [[and their clients) at risk as well. If they knew the loans were risky [[for the bank, they contain no additional risk for the borrower), so what?
Second, the fact that they knew the risk makes the action more, not less, palatable. High risk lending in urban areas happens all the time. Car loans, payday loans, check cashing outfits, you name it. The fact that the borrower doesn't have a steady source of repayment is a common occurrence in this type of lending. The implication is that "if the lender knew they wouldn't get repaid, they wouldn't have made the loan." These are big, professional firms who price the loan according to the risk.
And another:
And McCoy didn't realize that the lender wasn't setting aside part of her mortgage payments to pay her property taxes, with the result that she fell behind on her taxes, too.
Oh, please. Did she not read her documents? Residential mortgages have tons of pages of disclosures, and the borrower has every opportunity to, you know, READ THEM. I don't escrow my taxes--it doesn't create for me the right not to pay them.
Even better:
McCoy's loan passed among different financial entities until finally she was able to refinance at a more realistic balance — $8,500, or only about 10% of her original balance. She is working to pay down her tax delinquency. She remains in the house with her children.
So you got a $76,500 gift, and you're suing? Where can I sign up for that deal?
Typical garbage from what is supposed to be one of our region's better papers.
Why has nobody gone to jail over this? A precedent needs to be set. Predatory loan operations need to be outlawed. Profiteerism in the financial world needs to end, I don't care.
Good luck in defending any of this. This country is run by big business, and the perpetrators always will have immunity from being held accountable.Quote:
Originally Posted by Hypestyles
An observation: I remember getting many offers to refinance my home in the mail during the early 2000's. I had a paid-off mortgage and I was tempted to re-mortgage so I could have a lot of things that some of my friends had: a sunroom, a nicer kitchen, a cruise.
I never did re-finance and I was/am happy.
i note that no one forced me to take on more/new debt with my house as the security. No one offered to pick anyone up and take them to the closing, as far as I know.
My neighbors did clearly get a liar loan for $112,000 in 2005 when only the wife was employed, and that cleaning airplanes at the airport. By 2008 they had abandoned the house.
But don't they bear any blame? Are they blameless victims? They saw the payment schedule. They were in their late 40's with some experience that should have told them that they weren't going to suddenly start making a lot more money.
I get those emails from Nigeria - how much would I be to blame if I sent the deposit they request.
How much should people be asked to think through- or maybe every wrong consumer decision should be some other entity's fault?
One problem - lender's were more interested in the fees they were generating than they were in underwriting the loan, i.e. credit-worthiness of borrower, true value of property, etc.
Second problem - inflated appraisals.
Our home has been free and clear since the 80's. All of the ads for these phony equity loans went from the letter carriers hand to my hand to the trash can. I remember at 6:30 am every day on WWJ radio when the alarm went off there was some guy hawking these loans. Buy a car, take a vacation etc. Use the equity in your home to have good time, pay the piper later. Many did. And many are still paying the price.