This is a philosophical post that pretty much explains where I stand on the economic crisis. I believe that while in many scenarios more than one person is truly responsible, ultimately we are all responsible for our own actions.
So for example, a drug addict is to blame for their drug problem and not the dealer. A student is usually to blame for bad grades and not the teacher. The person who pulled the trigger is guilty of murder, not the seller of the weapon or ammo.
So understanding this about me, it should make it obvious that I blame we Americans for the mortgage crisis in our country right now. I blame myself because too, I have an ARM on my rental property and I didn’t put down 20% on my home.
I am part of the problem, and refuse to blame Wall Street — or Washington for that matter. Sure, without the banks willing to give us bad loans, it couldn’t have ever happened; but ultimately it is our crisis to bail ourselves out of and in a way the biggest mistake Wall Street made was to trust that we would all pay our loans back. Now personally I’ve never missed a payment on any of my mortgages, but I made the same mistakes that others have, it’s just that up until now, my mistakes haven’t caught up with me. The good news is that like many others, I learn from my mistakes and honestly believe that while this important lesson is going to hurt for now, in the long run it is going help us.
Ben – I agree with your points about personal responsibility. Like you, I took out risky loans, and I also am keeping up with my mortgage. You talk to a lot of successful people out there and they took risks at some point in their life. You took a risk that has potential for a good return for you with a rising home price and satisfaction of having your place(s). While that might not be the case right now (i.e. rising home prices), it might pay off for you in the long run. In the same way, the banks took a risk with you and me. They seemed to of just pushed the limit too far and got too greedy. To me those “risky” loans were made for people like you and me that are making it work out.
Good point, I didn’t mean to say that it was all of my fault, just that we all need to take some of the responsibility. I do agree though that it isn’t a bad loan until it is defaulted, so anyone who took a risky loan and paid it off, did exactly what was intended. The problem of course is the rest of those who didn’t pay it back.
I don’t honestly think it is people with ARM’s and folks that didn’t put down 20% for their mortgages, I too have an ARM loan, in fact I have an 80/20 ARM loan.
The issue lies in those who went above and beyond the means of their income and went “house broke” bought into a home that was more than they could afford.
Also to blame is the banks for giving people who couldn’t afford those homes the loans to do so, and they were more than willing to give them the money.
But to blame people who took out ARM loans is a bit extreme don’t you think? It is more the people who took out interest ONLY loans that are more of the issue. People who took out short term, interest only loans are the ones who are defaulting on them.
The problem is though that it was too easy to get these types of loans, banks only didn’t income verification, never looked at monthly expenses, so on paper it looked like you made say $2k a month but it didn’t show your monthly bills were $1200/month. Banks didn’t care if you couldn’t afford to make those payments once the ARM term was up and the interest rates started to go up, they saw that on paper you made so much a month and that income was enough to cover the mortgage payment.
But another fact is, that it is too damn easy for people to default on loans, file bankruptcy, and wipe their slate clean. It happened in the late 70’s and early 80’s and its happening all over again today.
Hell I know at least half a dozen couples that have defaulted on their loans, and said fuck it and filed for bankruptcy. Shit like that shouldn’t be so easy to do, but it is, and the way things are done around here today allows it to be this way, and making it the “in thing” to do.
but to say the people who accepted the ARM loans, and the people who didn’t put 20% down on their mortgage are the ones to blame isn’t right at all. If it wasn’t for an 80/20 ARM I couldn’t have gotten into my home and it would have taken my wife and I at the time, fresh out of college, just starting out our careers, damn near 10 years to come up with a 20% down payment on a conventional 30 year mortgage.
/end rant.
– Josh
Josh,
You are 100% correct, but in my situation, I still bit off more than I feel comfortable with now, but for reasons that were too personal for public posting.
What I really meant was that there are some people who made the same decisions I did that are defaulting, and that although Wall Street is greedy and could’ve prevented this by being more diligent, they are not soley to blame.
oh yes I whole heartedly agree that in today’s society that almost anyone will take a loan if given it to them, especially when it comes to mortgages, they are personal, emotional, and people go into them not thinking the long run, so yes I can see your point.
But seeing it from the mortgage company side of things, there are things they could have done to prevent all these loan defaults, mainly doing more than an income based verification.
When I got my home, and my mortgage they said we qualified for a home that was way out of our league, and they tried to “upsell” us, but we weren’t ready and knew we couldn’t afford it either.
So yes you can blame those who went into this knowing full in well that when the loan came to term they wouldn’t be able to afford it, and that is their fault, but it is also the fault of the mortgage company for even giving that person the loan in the first place.
Josh,
Well, the bankers were doing the same thing most were: speculating that prices would go up.
Banks didn’t care about bad loans because they’d foreclose and make more money selling the house anyways.
Home owners didn’t worry because they’d just refinance and lower their payments later and maybe even get some cash out.
The problem of course is that mort’ industry busted and when all the houses were worth less instead of more, everyone’s plans didn’t work out.
While some individuals knowingly bit off more than they could chew and could be blamed for that, it’s not wise to place all or most of blame on consumers. Everyone (buyers, loan officers, mortgage brokers, underwriters, appraisers, banks, etc.) is at fault due to obvious flaws in the system.
For example, since loan officers/brokers get a cut, they want to write more loans and for larger amounts. That’s why many conspired with appraisers to inflate property value.
They also have incentive to push people toward products that bring in more profits/bigger cut (e.g. ARM vs fixed, interest-only vs regular). And because mortgage loans are such a complicated matter with a ton of scenarios & assumptions that need to be looked at, it was fairly easy for unscrupulous lenders to convince even people with good credit to get loans that would later be nothing but trouble.
Anyway, bottom line is that everyone has had incentives to cheat & manipulate the system and many, if not most, consumers are victims of predatory lending practices and not-stop brainwashing by ads from mortgage companies (I’m looking at you, Countywide, Ameriquest, and Quicken!).
Ivan,
While I agree, like most of the media, I think you try to make the home buyer out as sheep, when in fact they are just as greedy as everyone else. They wanted that new big house and although deep inside I’d bet they knew better, they were very excited to hear the banker tell them they could afford more than they originally though.
As you can see from my post, our philosophies are fundamentally different, but one thing we can both agree on, just about everyone in America had a part — no matter how small — in this, which is why the gov’t has to bail us all out.
After reading the post and comments the phrase that comes to mind is caveat emptor. or, “buyer beware”. The purpose of consumer and business credit bureaus is to make lenders, whether they are banks, dept. stores, or individuals, aware of the potential credit risk of a party seeking a loan. The credit bureaus are a “trust” or “responsibility” indicator. There is a definite correlation between the credit indicator of a party and how much they can be trusted to keep their commitments.
That said, frankly, the banks knew what they were doing, and so did the borrowers. So everyone involved is to blame for this mess. The question is, who should pay the price? Well, according to some pretty smart people (not saying they are honest people, but they are smart) if we, the American people, don’t pay for these loans we will wish we had. It can be likened to when the responsible sibling has to bail out his/her irresponsible sibling for taking silly risks. If you (the responsible one) don’t bail out doofus you’ll have to hear about it from the whole family… and you don’t want that, now, do you?
So, we’ll pay up if only so we don’t have to keep hearing about it every time we turn around.