State of the Union

[ptatc]

Depending on how you read your first sentence with the third, not exactly. There have been numerous studies looking into the causes, trends, etc. and there really isn't much evidence poorer borrowers being the primary cause. The third sentence in isolation is more less or correct in that too many people at too great of a risk of not paying it back were loaned too much money, but what this most recent study found is that people were overextending themselves across the income scale:

 

http://www.vox.com/2015/1/26/7897035/poor-...crisis-mortgage

 

 

 

 

and then of course what could have been a relatively isolated mortgage default problem was hugely amplified by all sorts of "AAA rated" mortgage-backed securities and credit default swaps.

 

So, generally speaking, yes, the root of the problem was banks/mortgage brokers telling people they could take out loans much larger than they could actually afford because the banks were just going to securitize or sell those mortgages right away anyway and people taking these loans that the banks assured them they were qualified for. But if by "those who really need it" you mean people with lower incomes, then no, they weren't more of a cause than any other income group.

Got it. That makes more sense. It was everyone who borrowed more than they should have regardless of current income. Is that more accurate? Again in a simplistic manner.

[ptatc]

While not everyone might want to go to college, I don't think "how much money your parents have" is one of the hurdles they should have to clear if they want to.

Actually, going through this right now, the more money your parents have the less likely you are to get money and must incur more debt. Unless the parent are willingly to borrow money as well. The middle class gets stuck here. You make decent money but not enough to pay a extra 20,000 a year for school and your child cannot get government money so they must go to the private lenders.

[ptatc]

Just to add to that a bit, the banks and mortgage brokers would also knowingly and willingly lie on the paperwork or encourage the borrow to lie, or they'd simply hand out money with no verification whatsoever in NINJA loans.

 

But the big investment banks also started to believe in their own MBS snake-oil and held on to a later of the paper themselves. Or maybe they knew it was garbage but didn't care because they were making huge fortunes every year and knew that, even when it all hit the fan, they'd still be walking away with millions.

This is where the buyer should realize how much they can spend without over extending themselves? It's the whole "house poor" scenario. Everyone wants a bigger house so they push it and don't make it.

[StrangeSox]

Got it. That makes more sense. It was everyone who borrowed more than they should have regardless of current income. Is that more accurate? Again in a simplistic manner.

That, plus the securitization/"risk-spreading" stuff that Y2HH covered. Though I might frame it as banks lending more than they should have as they're supposed to be the financial professionals. Both sides have to sign the papers.

Edited January 30, 2015 by StrangeSox

[ptatc]

That, plus the securitization/"risk-spreading" stuff that Y2HH covered. Though I might frame it as banks lending more than they should have as they're supposed to be the financial professionals.

That's an interesting point of view. Not knowing the financial world much, I bet this was a huge debate. Who is more at fault the banks for taking the risk or the people who accepted the loans taking the risk.

 

From a societal stand point I guess I would lean toward the people taking the money shouldn't have taken it and agreed to pay it back as opposed to the ones offering it trying to make the money.

 

Kind of like the State of Illinois. Don't spend more than you have. (but I'm a little bias on this one being a state employee)

[StrangeSox]

That's an interesting point of view. Not knowing the financial world much, I bet this was a huge debate. Who is more at fault the banks for taking the risk or the people who accepted the loans taking the risk.

 

From a societal stand point I guess I would lean toward the people taking the money shouldn't have taken it and agreed to pay it back as opposed to the ones offering it trying to make the money.

 

But who are the educated, knowledgeable professionals here? Who are the ones that are supposed to be experts at evaluating loan risks? It's not like there's a shortage of stories/lawsuits over banks pushing people to lie on the applications in order to qualify or simply changing the numbers on the applications themselves.

 

Think of high-pressure car salesmen. They're just looking to squeeze the absolute most out of you. When I was buying a car back in May, I overheard the deal going down next to me as I waited on paperwork. It was a younger kid, early 20's, looking at buying a new Toyota FR-S. Only problem was, he couldn't actually afford it. Within 20 minutes, the sales guy had talked him into an "affordable" lease and then he could just buy the car outright in 3 years! It's a high-pressure situation with lots of emotion involved (you really do like that car/house, and you do need something to drive/live in). One side of the table is highly incentivized to get that deal closed, and they've got a lot of experience in negotiating. They'll lie to you, their boss and anyone else to get the deal closed. They'll use well-worn but effective tactics ("four squares) to get you focused on the "right" numbers.

 

Now one critical difference there is that most people view car salesmen pretty skeptically, but even with that they're pretty successful. I don't have data, but I'd imagine that people are generally a lot less skeptical towards the loan officer at their local bank branch, and that they'd trust these people to give them sound financial guidance. But that's not what they were getting. They were getting mortgage brokers looking to push as many people into the most profitable loans they could regardless of the actual financial circumstances.

 

Why should we more heavily blame the people emotionally invested in one of the biggest decisions of their lives (buying a home) instead of the people who churn out mortgages every day and are looking to make as much money as possible? The bankers are the people who are supposed to have seriously and legitimately evaluated the financial capabilities of the mortgagee and determined that they could repay this loan.

Edited January 30, 2015 by StrangeSox

[southsider2k5]

But who are the educated, knowledgeable professionals here? Who are the ones that are supposed to be experts at evaluating loan risks? It's not like there's a shortage of stories/lawsuits over banks pushing people to lie on the applications in order to qualify or simply changing the numbers on the applications themselves.

 

Think of high-pressure car salesmen. They're just looking to squeeze the absolute most out of you. When I was buying a car back in May, I overheard the deal going down next to me as I waited on paperwork. It was a younger kid, early 20's, looking at buying a new Toyota FR-S. Only problem was, he couldn't actually afford it. Within 20 minutes, the sales guy had talked him into an "affordable" lease and then he could just buy the car outright in 3 years! It's a high-pressure situation with lots of emotion involved (you really do like that car/house, and you do need something to drive/live in). One side of the table is highly incentivized to get that deal closed, and they've got a lot of experience in negotiating. They'll lie to you, their boss and anyone else to get the deal closed. They'll use well-worn but effective tactics ("four squares) to get you focused on the "right" numbers.

 

Now one critical difference there is that most people view car salesmen pretty skeptically, but even with that they're pretty successful. I don't have data, but I'd imagine that people are generally a lot less skeptical towards the loan officer at their local bank branch, and that they'd trust these people to give them sound financial guidance. But that's not what they were getting. They were getting mortgage brokers looking to push as many people into the most profitable loans they could regardless of the actual financial circumstances.

 

Why should we more heavily blame the people emotionally invested in one of the biggest decisions of their lives (buying a home) instead of the people who churn out mortgages every day and are looking to make as much money as possible? The bankers are the people who are supposed to have seriously and legitimately evaluated the financial capabilities of the mortgagee and determined that they could repay this loan.

 

You mean like Freddie and Fannie?

[StrangeSox]

Freddie and Fannie got into the game very late after their market share was getting eaten by the Wall Street banks. But yes, they made poor decisions as well.

[Y2HH]

Freddie and Fannie got into the game very late after their market share was getting eaten by the Wall Street banks. But yes, they made poor decisions as well.

 

Fannie makes good candy.

[ptatc]

But who are the educated, knowledgeable professionals here? Who are the ones that are supposed to be experts at evaluating loan risks? It's not like there's a shortage of stories/lawsuits over banks pushing people to lie on the applications in order to qualify or simply changing the numbers on the applications themselves.

 

Think of high-pressure car salesmen. They're just looking to squeeze the absolute most out of you. When I was buying a car back in May, I overheard the deal going down next to me as I waited on paperwork. It was a younger kid, early 20's, looking at buying a new Toyota FR-S. Only problem was, he couldn't actually afford it. Within 20 minutes, the sales guy had talked him into an "affordable" lease and then he could just buy the car outright in 3 years! It's a high-pressure situation with lots of emotion involved (you really do like that car/house, and you do need something to drive/live in). One side of the table is highly incentivized to get that deal closed, and they've got a lot of experience in negotiating. They'll lie to you, their boss and anyone else to get the deal closed. They'll use well-worn but effective tactics ("four squares) to get you focused on the "right" numbers.

 

Now one critical difference there is that most people view car salesmen pretty skeptically, but even with that they're pretty successful. I don't have data, but I'd imagine that people are generally a lot less skeptical towards the loan officer at their local bank branch, and that they'd trust these people to give them sound financial guidance. But that's not what they were getting. They were getting mortgage brokers looking to push as many people into the most profitable loans they could regardless of the actual financial circumstances.

 

Why should we more heavily blame the people emotionally invested in one of the biggest decisions of their lives (buying a home) instead of the people who churn out mortgages every day and are looking to make as much money as possible? The bankers are the people who are supposed to have seriously and legitimately evaluated the financial capabilities of the mortgagee and determined that they could repay this loan.

 

I understand your concept. However, I guess it doesn't make sense to listen to just one person on anything regardless of their education and their profession. Why would borrow so much money that when you look at your paycheck would be limit anything else you could do? They should look at it in the big picture. The people still had to sign on the dotted line and agree to borrow that money. Anytime you buy anything especially in the thousands and 100's thousands dollars you would think that people would look at it more closely and not just listen to one person trying to sell you something.

 

I guess it's just a different point of view. I can't imagine just signing it know it would take too much of the paycheck. Now if you lose your job or something drastic like that happens, it's a different story.

[Jenksismyhero]

I understand your concept. However, I guess it doesn't make sense to listen to just one person on anything regardless of their education and their profession. Why would borrow so much money that when you look at your paycheck would be limit anything else you could do? They should look at it in the big picture. The people still had to sign on the dotted line and agree to borrow that money. Anytime you buy anything especially in the thousands and 100's thousands dollars you would think that people would look at it more closely and not just listen to one person trying to sell you something.

 

I guess it's just a different point of view. I can't imagine just signing it know it would take too much of the paycheck. Now if you lose your job or something drastic like that happens, it's a different story.

 

To be fair, the entire house buying business is just utter nonsense. I'm a lawyer and read contracts all the time. I didn't read through the mortgage/closing documents when I bought my house because it would have taken me a week to get through. You sign 50 documents. And it's not like you're going to not agree to certain items and have someone there at the closing negotiate with you about that change. You take it or leave it.

 

 

[ptatc]

To be fair, the entire house buying business is just utter nonsense. I'm a lawyer and read contracts all the time. I didn't read through the mortgage/closing documents when I bought my house because it would have taken me a week to get through. You sign 50 documents. And it's not like you're going to not agree to certain items and have someone there at the closing negotiate with you about that change. You take it or leave it.

Right but you know the amount you will pay per month and your income per month. The monthly payment is written in a little box. You don't need to read everthing to know that.