Real estate agents
The charge: Salespeople fed the frenzy.
"I'm frustrated that real estate agents have gotten off scot-free," says Shana Smith, president of the National Fair Housing Alliance.
According to Smith, agents encourage consumers to buy much more house than they can afford and the agents show them how to do it through the use of exotic mortgage products like hybrid ARMs, interest-only and negative-amortization loans.
"My neighbors just bought their first house," says Smith. "They carefully figured out how much they could comfortably spend - $325,000. The first thing their agent told them was, 'I think we can go up to $400,000. We can get you into more house.'"
"When the real estate agent can show how she can get you into a $400,000 house, your eyes get big."
Real estate agents are salespeople and, just like any salespeople, it is in their best interest to move up their customers into a bigger, more expensive product.
Bottom line: Real estate salespeople are not always scrupulous about fulfilling their fiduciary responsibilities to their clients. They sometimes persuade consumers to overspend and take on mortgage payments that may ultimately be unaffordable. But borrowers, too, have to take responsibility for staying on budget.
Consumers
The charge: The consumer got caught up in the frenzy as well. The possibility of huge profits and the feeling that they better buy now before the market goes too high also fed the insanity.
The consumer also bought too much house for their budget or credit picture. Caught up in the frenzy, consumers stretched themselves beyond what they should have and using the creative exotic loan programs, were able to buy as much as 25% more house.
They were ‘sold’ these programs, often without understanding or caring about the risks in payment increases and eroding equities and in so find themselves in a world of hurt.
Bottom line: The consumer is not all innocent in the problems. Did they get the ‘whole story’ from the lenders or agents? Often times not. Should they have asked more questions and actually read all the disclosures? Yes. Were they a bit greedy as well? Yep. Should they maybe not have over stated income to qualify of not tried to 100% finance everything just in case ‘life happened’ and it got tight? Deninitely.
The blame can be evenly spread among all the parties involved. We also have to work together and get past the blame to survive what is coming.
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