If you thought the subprime mortgage crisis was bad...

[Texsox]

If a college student walked in to a BMW dealership, declared no provable income, and the dealer leased him a car anyway, who is responsible there? Why is there no responsibility on the lender to verify these things?

 

Yes, she was clearly wrong. But If I walked in to a BMW dealership 8 years ago and tried to lease a car, I'd have been laughed out of the place. Why isn't it the job of someone above them to actually verify income levels before giving out a loan? This exact same thing was done all the time in the mortgage business, people would just ask a person for a number, and sometimes even suggest an income level in order to give them a loan. Should that be ok?

 

She was wrong because she did not know how much it would cost to lease that car? What should have happened is she walks in and is told how much it is. She provides her income and down payment and is turned down and goes home. That is how our system works.

 

Again, I am rememebring an old Sun-Times investigative piece where retirees where billed 10X what something should cost. The business made up b.s. stories, scared them, and made the sale.

 

There has to be a balance between open season on consumers and the government bailing everyone out.

[Balta1701]

If the student agreed that they had a level of income that they did not, they are committing a crime. If the fraud was being committed soley by the dealership, then they should be the only ones being charged.

 

My question would be, what exactly is a college student who has no income doing trying to get approved for a BMW? Doesn't that by itself deserve some level of being responsible for your own actions?

Certainly does.

 

Here's one way to look at this. I'll let each of you respond.

 

There are 3 people here. 1 is the dealer who wrote the fraudulent loan. 1 is the person who tried to purchase a vehicle they could not afford (assume for a moment that she did not lie about her income and that was changed without her knowledge). Another is the person at the lending company who accepts the loan without bothering to verify income levels because they make big profits by selling off worthless loans to other banks.

 

Please rank these 3 in terms of which ones you'd blame the most.

 

Here's mine:

 

1. The dealer, who wrote a fraudulent loan

2. The lender, who doesn't bother verifying income

3. The person who is stupid.

 

If, however, the buyer lied about her income directly, without any influence by the dealer, in that case I'd jump her from 3 to 1.

[Texsox]

Like I said, they're BOTH in the wrong, but the woman is not, in any way, shape or form, a victim.

 

The application was allegedly changed after the fact. Without specific knowledge of the woman, I can't say if she is or is not a victim. If she held a Harvard MBA, not a victim. If she has an IQ just below room temperature, was made promises and convinced by the salesperson, mislead, lied to, etc. I can easily see she was a victim.

[southsider2k5]

Certainly does.

 

Please rank these 3 in terms of which ones you'd blame the most.

 

Here's mine:

 

1. The dealer, who wrote a fraudulent loan

2. The lender, who doesn't bother verifying income

3. The person who is stupid.

 

If, however, the buyer lied about her income directly, without any influence by the dealer, in that case I'd jump her from 3 to 1.

 

If the buyer knowingly agreed to a lie about her income, she is just as guilty as anyone else, whether someone else participated in that lie or not. "influence" is garbage. It doesn't excuse culpability.

[kapkomet]

Don't get me wrong, the dealership was dead wrong. But so is the stupid person.

 

[Texsox]

Here's mine:

 

1. The dealer, who wrote a fraudulent loan

7. The lender, who doesn't bother verifying income

8 or lower. The person who is stupid.

 

If, however, the buyer lied about her income directly, without any influence by the dealer, in that case I'd jump her from 3 to 1.

And mine as well.

 

Based on what we've read, I am positive

 

The dealer knew this person should not be buying this car. They sell cars all the time and have the most knowledge. They also have the most to gain. The numbers changing like they did seems to implicate the dealer.

 

Again, without knowing the buyer, we are all making assumptions regarding her financial IQ, and her ability to make a judgment on the salesperson's truthfulness.

[Texsox]

Don't get me wrong, the dealership was dead wrong. But so is the stupid person.

Either stupid or terribly gullible and trusting. I wonder if she had ever bought a car before.

[kapkomet]

Either stupid or terribly gullible and trusting. I wonder if she had ever bought a car before.

Where in the hell does common sense take place? Let me see, college kid, no income, OH HELL YEA, I CAN SPEND $100K on a car!!! WTF is wrong with people?

 

Or, I make $40K a year and OH HELL YEA, I CAN SPEND $750K on a house!!! Again, WTF is wrong with people?

 

It's called P-E-R-S-O-N-A-B-L-E R-E-S-P-O-N-S-I-B-I-L-I-T-Y. I guess that's just too damn hard for people to swallow, though. So, I typed it really slow so you reading impaired folks would get it.

[Texsox]

Where in the hell does common sense take place? Let me see, college kid, no income, OH HELL YEA, I CAN SPEND $100K on a car!!! WTF is wrong with people?

 

Or, I make $40K a year and OH HELL YEA, I CAN SPEND $750K on a house!!! Again, WTF is wrong with people?

 

For all we know she has never entered into a contract before. She may have seen one of those car ads that advertise $400 lease payments and by the time you get to the contract, it's $1000. There are very few industries that are sleazier than cars and car repairs.

 

My grandmother was very close to buying a time share "investment" that she could "leave for her kids". She had never bought anything like this before, my grandfather made all those decisions. You and I know that committing 75% of your savings and 30% of your fixed income on a time share was a huge mistake, but this was a "very nice man" who sounded "very trustworthy" and the expected profit was better than her CDs.

 

Was she stupid? In this area, I guess so. Kap would say she had no PERSONAL RESPONSIBILITY.

[kapkomet]

For all we know she has never entered into a contract before. She may have seen one of those car ads that advertise $400 lease payments and by the time you get to the contract, it's $1000. There are very few industries that are sleazier than cars and car repairs.

 

My grandmother was very close to buying a time share "investment" that she could "leave for her kids". She had never bought anything like this before, my grandfather made all those decisions. You and I know that committing 75% of your savings and 30% of your fixed income on a time share was a huge mistake, but this was a "very nice man" who sounded "very trustworthy" and the expected profit was better than her CDs.

 

Was she stupid? In this area, I guess so. Kap would say she had no PERSONAL RESPONSIBILITY.

Then she better ask someone what they think if she doesn't know. Young and old, there's plenty of people to help. If you make the decision, you screwed up and will have to pay the consequences.

 

That's ok... it's all ok, because that way, I can pay for everyone's mistakes because my government will take care of EVERYONE except me, because I won't sit around and wait for them to take care of me.

 

 

 

[DrunkBomber]

Obviously the dealership was wrong but i dont think it was done behind her back. She ran into a salesman and got talked into buying the car. Car salesman will use any means to get a buyer into a car whether they can afford it or not. Where does it stop then? What if you buy a tv you cant afford at Best Buy? The consumer is the one responsible for their purchases. Now, if the dealer told her the payment was gonna be less or something thats one thing. I just dont see how this is anyones fault but heres. Consumer: I want to lease this car, I have X to put down and want it for X years. Dealer: Your payment will be X for X years.

 

Its not the dealers job to decide who can afford what. the 6k to 8600 is irrelevant compared to the 2500 to 6k. She signed an application saying she made more than she did, if she hadnt done that then she never would have been in that situation. Shes an idiot for agreeing to the lease and now is trying to gain sympathy to get her money back.

 

Since she signed the application saying she made 6k and thats all thats documented then the conversation between her and the salesman is hearsay and her signature is all that is needed to prove liability.

 

I would love to see what her disability checks are from too. Obviously whatever prevented her from being able to work wasnt bad enough to stop her from cruising around in a BMW convertible.

 

Bottom line is she knew what the payment was when she leased it. That never changed. If she couldnt afford to pay it she shouldnt have agreed to the terms and she should have to do what anyone else would which is get it repossessed and trash her credit. This lady in just a parasite looking for hand outs.

[Balta1701]

Then she better ask someone what they think if she doesn't know. Young and old, there's plenty of people to help. If you make the decision, you screwed up and will have to pay the consequences.

 

That's ok... it's all ok, because that way, I can pay for everyone's mistakes because my government will take care of EVERYONE except me, because I won't sit around and wait for them to take care of me.

A legit question in reply.

 

If, at the higher up step there was a requirement that the lender do something to verify this person's income before making this loan beyond just accepting the person at their word, this loan (and an awful lot of the mortgage problem) would never have happened. Someone can correct me if I'm wrong but I think that would seem to be a small expense in terms of time/money for the lenders writing these loans. So can you give me a reason why that would be a bad idea? Yes, personal responsibility is a great thing...but if it's so easy to game the system...if all you have to do is lie in one line on a form and the odds are no one finds out unless the credit market blows up, and by that time you've either walked away with your sales commission or you've split for Mexico with the car, why not take what seems to me to be the easiest step to prevent this problem and require some sort of actual verification of the quality of the loan?

[Texsox]

Then she better ask someone what they think if she doesn't know. Young and old, there's plenty of people to help. If you make the decision, you screwed up and will have to pay the consequences.

 

That's ok... it's all ok, because that way, I can pay for everyone's mistakes because my government will take care of EVERYONE except me, because I won't sit around and wait for them to take care of me.

 

Somewhere between the two is the balance. Believe it or not, there are victims, or else we would not have people serving time for fraud. We go to experts and get fraudulent advice. So lawyers, stock brokers, CPAs, and etc, find themselves in jail. Do you hire a CPA to check your CPA? Hire a car dealer to go with you to the car dealer?

 

We want the government to protect us all the time. We do you want to drop the FDA and food inspections. We do not want to drop product liability laws and let everyone decide on their own if that machine is safe?

[mr_genius]

Thing is, if a lender gives out a bad loan they do pay for it. I don't think the government should use tax dollars to bail out bad lenders. They also shouldn't bail out greedy or stupid borrowers. I heard a recent Dem plan of the government buying out all these bad home loans, and then refinancing them for people... a horrible idea. The lender and borrower should pay, not tax payers who had nothing to do with these ridiculous deals. If someone bought a home they cannot afford, they are going to lose it. Time to rent something they can actually afford. Sounds cold hearted, but really the best solution.

[Texsox]

http://cbs5.com/local/auto.loan.defaults.2.645976.html

 

FREMONT (CBS 5) ― Auto payment defaults doubled last year and are expected to get worse -- a situation similar to the crisis in the home mortgage industry. A CBS 5 ConsumerWatch investigation found actions made by consumers, dealerships, and lenders are contributing to the auto loan crisis.

 

According to Power Information Network, 1.85 of the 9.6 million customers in 2006 who leased or financed a new car were subprime borrowers or consumers with weak credit.

 

Vivian Snyder had strong credit and was not classified as subprime, but she is one of many consumers who can't afford the car she leased. Snyder drove a brand new convertible BMW with a MSRP listed at approximately $100,000.

 

Most consumers can't afford it, and neither could Snyder. That's because the monthly lease payment was $1,300. It ate up half her income which was a $2,500 disability check. "I made a mistake by driving off with the car. I thought my situation would change. I thought I'd be able to go back to work soon and make my usual salary. You always hope things will get better. I didn't realize I was getting such a bad deal. They added all these extras knowing it would be difficult for me to make the payments already. I'm greatly embarrassed, I should have looked over the lease better."

 

Snyder made three unsuccessful attempts to return the car, but the dealership told CBS5 it had no authority to take it back. The lease was already in the hands of the lender BMW Financial.

 

How did the deal even happen? Apparently, her income was inflated by nearly 150%.

 

According to consumer advocate Rosemary Shahan with Consumers for Auto Reliability and Safety the practice is common. "This is an epidemic of loan applications being falsified," said Shahan. "In fact, the model for the meltdown we're seeing in real estate and home mortgage lending was auto lending."

 

Snyder's story started like so many others. She went to the dealership which is owned by Autonation, the largest automobile retailer in the country just to look.

 

She was caught up in the excitement and said she told the salesperson about her $2,500-a month income. But, what ended up on the credit application was the amount she could be making if she was not on disability.

 

"He (the salesperson) put what he thought I needed to get qualified for the car," according to Vivian.

 

She admitted she signed the lease with an inflated income at $6000 a month.

 

But CBS5 reviewed the lease application handed to Vivian as she left and compared it to a page from the same multi-layer document she retrieved days later.

 

Snyder's income had been changed once again - from $6,000 to $8,600, this time without her knowing. An "8" had been placed before the "6" and "0"s tacked at the end.

 

General Manager Larry Long said a salesperson insists he changed the figure while Vivian was present.

 

"I witnessed that sale. I saw her and congratulated her. She was so thankful. She was so passionate about wanting that car and would have done anything to get that car," Long said.

 

Long directed the blame on the finance company - BMW Financial Services.

 

"It's up to them to look at the credit application and they will see it at face value what the customer puts on paper as to be the truth," Long said.

 

CBS5 learned BMW Financial Services approved Snyder's lease based on her income stated as $8600. The approval occurred within a two-hour window and proof of income was not necessary.

 

Martha McKinley, a spokesperson with BMW Financial Services, said, "We have investigated this matter internally, and we are satisfied that BMW Financial Services acted appropriately at all times during the application and credit review process."

 

CBS5 aired Snyder's story and in the days following she returned the car to BMW of Fremont. She was unable to disclose terms of her agreement with the dealership, but said she learned her lesson. BMW of Fremont and BMW Financial Services had no further comments.

 

Sounds like she took personal reponsibility and was able to return the car, at some price. I'm guessing she lost most of her savings. She went in to look, not to buy. The salesperson's copy is different then hers. $8600 was beyond what she expected to be making without the disability.

[Texsox]

Thing is, if a lender gives out a bad loan they do pay for it. I don't think the government should use tax dollars to bail out bad lenders. They also shouldn't bail out greedy or stupid borrowers. I heard a recent Dem plan of the government buying out all these bad home loans, and then refinancing them for people... a horrible idea. The lender and borrower should pay, not tax payers who had nothing to do with these ridiculous deals. If someone bought a home they cannot afford, they are going to lose it. Time to rent something they can actually afford. Sounds cold hearted, but really the best solution.

 

Kap pr SS could respond better, but what would the effects be if dozens of banks and lenders went bankrupt?

[mr_genius]

We do you want to drop the FDA and food inspections. We do not want to drop product liability laws and let everyone decide on their own if that machine is safe?

 

See, you are taking it to the extreme. If Kap is against a government bailout of bad loans, it is in no relation to a suggestion of removing the FDA. The government serves a purpose in protecting us from certain things, but not everything. If someone buys a bunch of junk on a credit card and don't pay, I sure as hell don't want to bail them out. They get bad credit, because they are a bad borrower. The borrower gets stiffed on the money they gave out because they made a bad credit decision. Having the private sector work this out is a much better solution.

 

I think having a reasonable look at changing the loan process in the country could be useful, but those bad loans are done and the parties involved need to deal with them.

[mr_genius]

Kap pr SS could respond better, but what would the effects be if dozens of banks and lenders went bankrupt?

 

I don't think that will happen, and if some do, that happens when a company makes poor decisions. If there is a bailout it will only serve as encouragement for more bad practices.

[Texsox]

See, you are taking it to the extreme. If Kap is against a government bailout of bad loans, it is in no relation to a suggestion of removing the FDA. The government serves a purpose in protecting us from certain things, but not everything. If someone buys a bunch of junk on a credit card and don't pay, I sure as hell don't want to bail them out. They get bad credit, because they are a bad borrower. The borrower gets stiffed on the money they gave out because they made a bad credit decision. Having the private sector work this out is a much better solution.

 

I think having a reasonable look at changing the loan process in the country could be useful, but those bad loans are done and the parties involved need to deal with them.

 

fair enough

[Texsox]

I don't think that will happen, and if some do, that happens when a company makes poor decisions. If there is a bailout it will only serve as encouragement for more bad practices.

 

Chrysler, Savings and Loan. Seems like it worked before.

[mr_genius]

Chrysler, Savings and Loan. Seems like it worked before.

 

The US auto industry is still in trouble, basically we just paid them to keep making bad decisions. I'm not really familiar with Savings and Loan deal, but hey, we got another big Loan scandal. Is it really the best way to deal with it to bail em out again? and what about next time?

[Balta1701]

I think having a reasonable look at changing the loan process in the country could be useful, but those bad loans are done and the parties involved need to deal with them.

I think a big part of the problem here, and the issue that is getting ignored at the lender level is that some time in the recent past, the checks and balances in the system broke down.

 

Normally, if this person walked in to buy an expensive car, house, whatever, the dealer would benefit the most if they could sell them the highest priced vehicle right away to earn their commission, regardless of whether or not they could actually afford it. The more sales, the more money they make.

 

But, there is supposed to be 1 more step, there's supposed to be a finance person at the bank who doesn't make his money based on the number of loans he writes, he makes his money by making sure bad loans don't go through. So, if this person walks in to buy a BMW, the dealer's job is to say "Here's the keys" but it's the next person above him who's supposed to say "Wait a second, can you verify your income, can I see a pay stub, or a bank statement".

 

The problem is, this system broke down. Suddenly, in the past few years, the lenders discovered that they could take these loans and sell them off to other people as "structured investment vehicles", "asset backed securites" and whatever other alphabet soup they could come up with. So all sorts of hedge funds, totally divorced from the loan process, wound up buying this stuff for the full value of the loan, and suddenly the guy who's job it used to be to make sure loans were quality discovered he could make more money by writing whatever loans he wanted also, just like the car dealer, as long as he sold those loans off to the next person in the line who has no idea what he's actually buying.

 

That's why I keep coming back to the lender/bank level in this, because that's a key element in this whole credit mess. If I'm running the ol Bailey building and loan, it's part of my job to make sure that the loans I write are going to get paid off, because otherwise my business goes under. But once I can sell off all these loans to some investor somewhere who bundles it and sells it off again, then I can make money by writing loans that will never in a million years be paid off. That's the breakdown that happened the last 5 years, and that's where we need something done to fix the system.

[Texsox]

The US auto industry is still in trouble, basically we just paid them to keep making bad decisions. I'm not really familiar with Savings and Loan deal, but hey, we got another big Loan scandal. Is it really the best way to deal with it to bail em out again? and what about next time?

Chrysler was in 1979 and they paid back the loan a couple years ahead of schedule.

 

The US Savings and Loan crisis of the 1980s and 1990s was the failure of several savings and loan associations in the United States. More than 1,000 savings and loan institutions (S&Ls) failed in "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time."^[1] The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government ^[2], which contributed to the large budget deficits of the early 1990s. The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse-selection incentives compounded the system’s losses. ^[3]

 

A taxpayer-funded government bailout related to mortgages during the S&L crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher-risk loans during the 2007 subprime mortgage financial crisis. ^[4]

 

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 million to 1 million, the lowest rate since World War II. ^[5]

 

 

[mr_genius]

A taxpayer-funded government bailout related to mortgages during the S&L crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher-risk loans during the 2007 subprime mortgage financial crisis. [4]

 

Thats what I'm trying to get at, a bail out will only encourage more shady activity.

Edited February 13, 2008 by mr_genius

[Texsox]

Thats what I'm trying to get at, a bail out will only encourage more shady activity.

 

At the time, having thousands of Savings and Loans going out of business was judged to destroy our economy. Again, Kap, SS, or Bureau may be better at answering that.