Lenders have been offering mortgages with an astonishing array of attractions: Adjustable rates, flexible terms, quickie appraisals and no money down, rates as low as 1% - hmmm ;-o
Teasers like these were part of the mortgage boom of the last few years. Lenders - who mostly weren't banks at all, but unregulated brokers funded by Wall Street - raced to write as many mortgages as they possible could. Get it while it is hot, they say.
Those loans were then sold to investment banks, where they were bundled, sliced up and resold to investors around the world.
Mortgage-backed debt securities are now a major global investment vehicle, just like corporate stocks, municipal bonds and commodity futures.
But is this a good thing? Does the worldwide mortgage business end up benefiting ordinary folks and neighborhoods? Or is it just a huge money machine, preying on the ignorant to feed itself? That has been the recent question.
The latest stories do create an impression of mortgage lenders as overly aggressive. But is it all politics or is there another side? I say both!
For instance, Congress last week heard from a Philadelphia
But while there may well be many like her, it's probably a mistake to think of all, or even most, sub-prime borrowers as hapless victims.
In fact there are reasons people sign up for "non-traditional" loans. So-called "balloon" mortgages, whose rates jump after one or two years, can be appealing if you plan to buy a property and resell it within a short time. Or, they are optimistic about their ability to ‘clean their credit up’ and refinance before the big rate jump.
Some people want to consolidate other debts, using low mortgage rates to replace credit-card or auto payments. Still others need to tap the equity in their homes to meet unexpected costs.
Nothing, of course, excuses deceptive lending, and nobody should sign up for a loan that they can't afford or don't fully understand. But who is responsibility is it to inform and educate? The lender? Government? Or is it ultimately the borrower that is supposed to read all those papers and fully understand BEFORE they sign on the dotted line?
But it's important to recall how life was back when credit was not so easy to get. Lots of folks suffered back in the day because they didn't meet some banker's arbitrary standard of creditworthiness. Was that a bad thing? Many would argue… not really. That is why there is RENT.
The current mortgage mess will likely lead to new lending rules, as it should. But government needs to tread carefully, lest they make it harder for millions more Americans to get to their own best years. There is creative programs to stimulate home-ownership and there is the greedy lender using creative programs just to do more loans and make a quick buck. It all comes down to intent… as usual!
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