LIARS, everyone of them. No one will convince me that people are that stupid, that naive, that gullible, that dumb, that pompous, that they wouldn’t consult someone who knows before signing up for a mortgage, especially if they don’t understand what they are signing. No one will make me believe that someone who can barely afford their rent, would sign up for a mortgage that was greater than the rent.
ENOUGH IS ENOUGH!!!!–
FICO destroyed my business, it destroyed my
financial future, leached every last nickel of
my life savings, and now whines “I didn’t do it…”
FICO scoring has become the instrument of choice when
it comes to bleeding the American consumer dry in order
to satisfy the lending industry’s insatiable greed, no
matter whose blood it is sucking dry….
Let’s call FICO Zyklon B, in the greedmongers’s quest
eradicate the middle class, make the poor even poorer.
That’s OK, isn’t it? When Hitler’s government contracted
to purchase tons of prussic acid and hydrogen cyanide, it
was listed in shipping manifests and on purchase orders as
“delousing agents,” to rid public housing facilities of all
vermin and purveyors of contagion. Insecticide? That is one
pupose for which such chemicals can be used, but what about
delivering them to remote destinations throughout the vast
countrysides of Eastern Germany, Poland, Czecheslovakia, or
other regions where were no urban population centers, cities,
or any areas where insect and rodent infections were, or ever
could, pose any threat to public health?
So it is today with [UN]Fair Isaac. The more control their
statistically based computer models were given, first over
the mortgage industry, and subsequently over every aspect of
every person’s rights in this country, the more they tried to
defend their lame-duck positions; the more they profiteered,
laying down with the most putrescent elements of corruption
and contortion of due process— lives destroyed??? Why, we
don’t pour our Zyklon B delousing balls into gas chambers we
don’t even know exist; we just sell our wares to Mr. Hitler
and his cronies,so they can purge the countryside of stolen
lands of rats, roaches, ants, mosquitoes, and fleas that at
all times constitute a threat to inner-city inhabitants, in
the DEAD of winter.
Computer modeling of consumer credit profiles is a subject of
interest, one which an economics or statistical analysis grad
student could be proud to write a thesis or disseration on–
it sure as hell ain’t no way to run a country. Run, No. Ruin,
Yes— and that’s exactly what is now unfolding before our
very eyes……
I have nothing to hide, and wish to share my experience with
one and all. FICO has destroyed my LIFE. DPratt5546@aol.com
is my email address, and I will take telephone calls at 617-
794-5782. One of my state Congressional representatives told
me that I might have an opportunity to testify before a Senate
finance committee~~ fat chance………
In the name of greed and self servitude, bolstered by the worst
presidential administration in our country’s history, [UN] Fair
Isaac has willfully sold out the American Dream, sold out every
fellow citizen whose homes have been foreclosed, exploited all
means of leaching and/or extorting from the public ["People are
too stupid to understand our scores, but now that the law forces
our hand, we'll SELL consumers their scores."]
Corporate GREED is driving this country to ruin, and {UN} Fair
Isaac is a cornerstone in this new order of making the rich get
richer, the poor get poorer, and eradication of the middle class.
It IS ALREADY too late to address this situation without facing
the inevitable consequences corporate greedmongering and stupidity
in high places must invariably entail. It’s only a question now of
how far and how deep the backlash will go. As cited today in the
news, there’s no bottom in sight~ we’re in ever-accelerating free
fall. Terminal velocity is not far behind.
That’s all for now, folks. Time to go to bed with the lousy heat,
cockroaches, and toilet that must be dismantled in order to flush
if I have to use it at night. Pee in the bathtub is preferable, as
I can run it down with a bucket of water…..
FICO has brought me to this, and I have a decade’s worth of direct
experience, extensive documentation, and unimpeachable witnesses,
in support of my positions. Nonetheless, all this is useless if my
complaints fall only upon deaf ears. By this, FICO still holds its
claim over all of us, and snickers in victory as its abuse goes on
forever more, driving this country deeper into debt, and that much
closer to ruin each and every day.
FICO is still having their hour, though the tide is slowly turning.
Hang on, hold your breath, and PRAY! That’s the only chance we have
left now……
Douglas Pratt
Why is it that someone who was too great a credit risk in 1995, and their credit was unchanged in 2005, was suddenly an acceptable risk?
As I recall, everywhere were pie in the sky offers that were made without educating the target “customer” (victim is more the case.) These loans are defective products created by lending institutions who were motivated by huge return potentials. They marketed them, utilized “used car sales” tactics with assurances that the “customer” would be able to refinance in short order to avoid that escalating monthly installment then didn’t deliver.
I don’t know anyone one who woke up and said, “I think I’ll plan for foreclosure, bankruptcy, and homelessness today”, do you?
This is a prime example of the “Market Regulating Itself”. That’s a synonym for robbing the poor and middle class to make the wealthy even more wealthy with deceptive and unfair practices.
Whoever came up the high-risk lending model is a sadist. Lets offer unaffordable loan products to the people that can least afford them, tell them that they can, offer them hope then pull the rug out from underneath them.
If you purchased a television that is as flawed as these lending products, Consumer Reports would fry the manufacturer with negative reviews and you’d be demanding your money back!
Go Republican Deregulation Rhetoric!
Let’s open the money trap, then change he bankruptcy laws so that there is no hope for these people to regain control of their lives!
It sickens me that our government not only allowed our economy to become so skewed but encouraged it.
FICO Score is a major player in getting mortgage loan. I don’t think FICO rates peoples’ ability to pay back a loan. Neither does it correctly predict someone going bankrupt. If someone pays “minimum” payments on their credit on time, they get a high score. If you forgot to pay one month, then that’s it – the FICO score will go down! Anyways, reading your comments makes everyone even more sad. This is a great discussion – finally we know what everyone else is going through! There is some information on home mortgage and home equity here:
Credit scores are one of the major causes of this mortgage mess. I am a mortgage broker trying to make an honest living without very much help. The rates are rising..no obvious reason and customers having filed bankruptcy have higher credit scores than those who pay their bills on time each month and now fannie mae wants to charge big bucks on a homeloan for someone with a credit score less than 720….somebody has somebody in their back pocket! Where is a presidential candidate when you need one???
As a Mortgage professional I can tell you FICO is absolutely the reason for this mortgage mess. Many homeowners with perfect credit have low credit scores for one of the may reasons fico rates them, thus they are forced to take subprime loans that they shouldn’t have to. 10 years ago, the majority of people being forced into taking subprime loans would have been “A” borrowers. Shame on you FICO 100% your fault. For the record I am not a subprime mortgage broker.
My life has been destroyed by FICO scoring. More more than a decade, I have been hemorrhaging
thousands of dollars every month into the FICO-driven corporate greed-mongering lending system
before it finally caused my business to fail. I lost everything; two lovely homes, my credit,
and as a direct result will probably have tax liabilities so large that I’ll never be able to
pay them.
Self employed since college my trouble began after Congress delegated total control of the
lending industries, especially the mortgage markets. My property was appreciating rapidly, so
when offered money at very low, or even zero interest for several months to as long as a year,
I took them up on it, and put most of it back in the property in the form of renovations and
upgrades. When the teaser rate on one card expired, I would either pay it off, or flip it over
to another generous, unsecured lender, and was thereby spared the descent into credit card hell
that burdens so many Americans today.
When a project was finished, I would attempt to refinance, based upon a new value reflecting both
appreciation, and the tens or hundreds of thousands of dollars in improvements I had made. Never
did I qualify for conventional, Fannie/Freddie backed loan products, because of my FICO scores. I
was well tax sheltered due to costs of mortgage interest, taxes and insurance, scheduled depreciation
of rental units, and capital improvements. Self employment also premits the deduction of most business
expenses on Schedule C, so Uncle Sam was also contributing generously to my Lexus payments and client
dinners. My splendid Victorian row house had three bedroom, three baths with Jacuzzis, marble, and
Italian mosaic inlays, a private cinema with over 3,000 films on laserdisc and DVD, an aviary where I
was breeding parrots, 11 foot ceilings and huge casement windows. Rental income kept monthly mortgage
payments well below what the place would rent for on the open market:- roughly $4,000, plus utilities.
As my business and prosperity grew, so did the debt load. At any time, I should have easily been able
restructure it, when adjustable mortgage rates rose, or credit card interest went from the promotional
to the insane. Several times, I ended up with alot of high interest consumer debt, and a great deal of
equity in the real estate, which I was unable to refinance solely and exlusively due to those magical
numbers spit out of a computer:– FICO SCORE.
I bought a brick two family house on the flat of Avon Hill in Cambridge, a few blocks away from the
Radcliffe portion of Harvard University’s campus. On May 5, 1999, I was told by my mortgage broker
that I was approved for the purchase of just over $600,000, at 5.625% interest, based upon the down
payment of $95,000 I was making. On May 6, the mortgage broker called me out of a church function to
tell me that the lender, PNC National Bank, had risen its minimum middle FICO score requirement from
640 to 680. SPOTLESS credit history, not one late payment ever…. and in 24 hours, FICO had changed
my risk factor from enthusiastic “Yes” to sickening “Unfortunatelies.” At the time, my middle score
was 656. The mortgage contingency in the offer expired shortly before I signed the purchase contract,
so it wasn’t carried over. I did get a mortgage, Yes, but it came in at 7.125%, and required me to
to the closing table with at total of $157,000– an additional $35,000 in down payment money, and an
extra $10,000 or so in fees and other questionable charges added on by the subprime lender. I ended up
with a 2/28 Libor note, instead of a conventional 5/1 ARM. As the closing date approached, cash flow
was tight, and I was short $47,000. This I borrowed from a local banker who knew me well, at 11.25%.
We closed on June 29, 1999.
Enter the renovation phase. I was working with a “Political Science” professor from Tufts University,
who had a group of Armenian students coming for a two month summer program for August and September.
He offered me $7,000 a month rent for the entire place, and renovation on the two 1929 bathrooms, one
horrendous kitchen, the deplorable basement and a condemned garage began a few days later. They rented
furniture, moved in on August 1, and moved out on September 30, as agreed.
In October, the work continued. At the end of November, I moved into the first floor unit, and leased
out my primary residence at a current market rent of $3,250 [the cinema and aviary came later.]
The upstairs unit was 1810 square feet, two bedrooms, new Jenn-Aire kitchen, 21′ living room with a
working fireplace, formal dining room, study, and custom red birch marble/Italian mosaic Jacuzzi bath,
back deck, shared yard, and one garage parking space. I had gutted the basement, installed the cinema
on my side, and rebuilt the garage completely. Rent was set at $2,800 and the showings began.
Over 6 month, I had spent $130,000 renovating the house, and sought to refinance it to offset some of
this expense and get rid of another $90,000 or so in outstanding credit card debt. The appraisal came
in at $750,000, and my mortgage balance was $453,000. Do the math– I had nearly 40% clear equity, and
guess what. Although I was living the the house my FICO SCORE wasn’t high enough to qualify me for any
conventional loan program AT ALL. 680 is gold, 679 is industry trash, and that WAS CARVED INTO STONE I
ever walked upon or looked at while I owned this property.
Still making timely payments on all outstanding obligations [don't forget $47,000 @ 11.25%,] the decent
promotional interest on the credit cards suddenly shoots to an average of 17%, from promotional rates
about 5%. Do more math– that’s another $1,100 in non-deductible, consumer interest every month. Now,
the next phase of my FICO nightmare begins.
I’m living on the first floor, with a vacant $2,800 apartment overhead. As I fruitlessly continue my
quest for a non-FICO-BOUND lender, the inquiries start coming in. I hate living in that first floor–
it’s dank and drafty, taking a bath is like sitting in ice water, and a couple months after moving in,
I come down with some ungodly chest flu. 9 weeks out of work, and clinical depression sets in. I long
for home, and decide to move back to my first house.
This “phase two” I mention is the ballooning mortgage brokerage industry, packed with college students
and high school dropouts looking to get rich quick. With FICO doing all the work, no knowledge or skill
of any kind is needed; this new breed of “lending analysts consists largely of over-glorified data entry
clerks. Of course, they have all the answers, and my loan will close next week. Lies and excuses. FICO’s
scoring models allow 30 days for a consumer to shop for a mortgage– after that, each additional inquiry
drops the score a point or two, or three….. and yes, with FICO as the ONE AND ONLY variable, besides a
satisfactory appraisal of my property, time drags on, inquiries pile up, and my FICO SCOREs go deeper into
the mud. At one point, I had a middle score of 592, this with perfect credit history. The computer doesn’t
know or care how much the property is worth, what my bank statements look like, because the bottom line of
the 1040, not a borrower’s entire financial profile, is how the loan application is considered.
I do refinance, but because of FICO, my interest rate is alot higher, points and fees are jacked up, and
what was once a simple, efficient process completed by and between competent business people, becomes an
open leachfest upon the consumer, and the penultimate BLIGHT upon the American dream.
Long before any catastrophic storms were lingering beyond the horizons in my skys, I was predicting, with
amazing accuracy, where this thing was going to lead this country if it were allowed to continue. Quietly
enacted into law by a complacent Congress during a time of great prosperity, I saw the impending doom the
FICO scourge was casting over every square inch of this country, like a proverbial swarm of locusts– but
this is far more insidious and innocuous, because it comes from within. It’s not like a mosquito that eats
you from the outside; it’s like a brood of parasitic worms devouring the brains and entrails from inside.
I WANT ALL READERS OF THIS POSTING TO READ THE POSTINGS I’VE MADE, STARTING IN 1997 AND 1998, ON THE WEB
SITES, http://WWW.BAYHOUSE.COM, http://WWW.CREDITFORUM.ORG AND http://WWW.CREDITCOURT.ORG. These sites, run by Christine Baker
will show the extent of my ongoing consternation and frustration, falling upon deaf ears [I just made a
typo, dead for deaf, and I'd like that to be known.]
So much more of my story is told there, sometimes while I was drinking to much, for reasons that will be
obvious as you go through the hundreds of postings and responses. My Username there is Douggieboy. I also
have a dedicated website, still in early development, http://WWW.FICOVICTIMS.COM...
Before continuing with the history of my own experiences, and how I have been brought from prosperity to
ruin, I would like to address the question at hand: [WHO IS TO BLAME?,] and then share with one and all
what I’ve learned over the past ten years, studying and extensively researching every aspect of this kiss
of death, as it slowly drained my life of everything I’ve earned, believed, and hoped for with respect to
concepts of due process, upon which the country was founded.
In 1996, Congress passed lgislation allowing lenders to use computer generated computer profiling models
which seek to fairly and equitably determine the statistical risk factors any prospective borrower poses
to a lender. At first, lenders were allowed to simply give a direct answer, without explaining anything
as to how and why a specific lending decision was made. When I first heard of credit score, I believe the
numerical values were directly indicative of how well I was performing in service of my debt. My mortgage
broker was happy to share these numbers with me, though neither of us knew what they really meant, or how
they were derived. In 1999, the California State Legislature passed articles into law requiring disclosure
of consumer credit scores, and so began the [UN]Fair Isaac strategies of capitalizing upon every possible
avenue of additional revenue and profit, regardless of the consequences. In 1999, testimony was presented
to Congress on the matter, by represntatives of both the credit scoring developers and advocates, and one
of the most outspoken consumer interest proponents whose voice would be heard, Richard LeFebvre, of AAA
Credit, based in Arizona. A few search engine mouse clicks will bring up his website, and transcripts of
the hearings, to be read and interpreted as they are, for what they are.
The FICO SCORE is comprised of many factors, yet it is still largely a computerized “black box,” which at
this time, and for at least the entire past decade, has, and continues, to CONTROL every aspect of EVERY
PERSON’S LIFE in this Kountry. Kapitze? It started with mortgages, then spread to consumer credit, along
to the auto and insurance industries. Yes, car insurance rates in most states are greatly affected by the
FICO SCORE. If you make a late mortgage payment, your car insurance can be jacked up. Does it then figure
that if you run a red light or get stopped for speeding, your mortgage payment should go up? Turning on a
phone, having heat and electricity, are in most cases all affected by FICO scores. Apply for a job or try
to rent an apartment, and FICO is right beside you, all the way.
While [UN]Fair Isaac may not have directly authored or instigated the ways in which its statistical model
programs are used to judge people, they have gleefully lapped every last drop of gravy off each and every
dinner plate in this nation. This PUTRID prostitute to the GREED-MONGERING LENDING INDUSTRY, changes tune
at the drop of every hat….. and they don’t give a CRAP how many lives are destroyed in the process. You
can see this in every word of testamony they presented to Congress, and how they turned the laws enacted
in response to their megalominiacal outrages into additional cash engines, by SELLING THEIR SCORES to the
very people whose life those patently defective scores are used to model into conformity with the newest
American dream, that of the corporate greedster, glutted and engorged on the flesh and blood of every one
if its victims.
Enter the “UNIVERSAL DEFAULT CLAUSE.” It doesn’t take a Ph.D. in Economics or Statistics to realized that
any borrower presents a GREATER RISK to the lender if they are obliged to pay more interest on outstading
debt. Duhhhhh!!! ==
Get behind, or have a bad month? Make one credit card payment late, and you’re suddenly paying 31% on ALL
your credit cards!!! Slip on the ice? The GREEDMONGERS are happy to extend a helping boot, right into your
gut!! Sickness, divorce, business failure like mine, laid off? OK. Sorry. Unfortunately, the interest rate
is no longer 9.9%; it’s 29.9%.
Computers are great, but:—
They are not human.
They do, and can only do, what they are told to do. They can emulate human functions, and perform flawless
calcutions far more quickly and efficiently the most people do– and they’re great for that. The capacity
the human mind and spirit is infinite, while no matter how sophisticated and complex computer technologies
should ever evolve, they will always be measureable, and finite. A computer can match the paly of a master
of chess, because as many possible combinations of moves there are in a game of chess, that number is still
finite.
Computers can only work with information that is input. They cannot infer or extrapolate. As the technology
advances, these abilities can be more realistically emulated, but that is all they are, and that’s all they
can ever be.
I’ve been writing for hours, falling asleep in my chair.
In summary, this company is not the actual instigator of the economic chaos and collapse the abuse of its
product does/will cause; but it is, has been, and probably always be, a front-line ally in the service of
corporate greed, so long as it continues to profit, and until such time as the battlefront comes to their
very own doorstep== but by then it will probably be to late, because in all honesty, I believe it’s already
too late.
For me, the doors have closed; the curtain has fallen. I’m living in a run-down, roach infested apartment
with lousy heat, in a cheesy neighborhood. My economy car has already been broken into twice since moving
in here January 1. If not for family help, I would be in a shelter—- There’s so much more to this story;
alot of it is on the websites mentioned above, and I’ll continue this posting at another time soon. I can
be contacted by email if you click on my username; if you get bounced, skip a year forward and try again.
Thanks –
There is a Biblical reference to FICO; Revelation 13, verses 16:18.–
I’ve read the Bible in four languages, and speak several more. Harvard, class of 1990.
Line of work:– Real Estate, sales, apartment rentals, and property development.
Those of you who are intimately familiar with the Nazi Holocaust, and especially who also speak German,
should recognize a poignant correlation between the perversion of their country’s cultural legacy, and
that of the name of the company who has authored the scripts for what is now only beginning to play out
in this country……..
My salute to [UN]Fair Isaac is short and sweet:–
Your time has come. I shall take pleasure not as you die, but as life is relinquished once again to those
of us who refuse to abandon our humanity at the expense of others.
WORK SETS YOU FREE– and that’s true in every language..
Now, FICO will revise and raise its standards, and less people will qualify for loans. In addition, FICO will be used more and more to deny employment as well. FICO is our new GOD, so praise the educated, arrogant, self-serving financial professionals that created FICO. As always yuo’ve shot yourselves in the foot, brilliant!
Credit Scores are an absolute joke. My wife and I have enough money saved to retire comfortably in our early 50s. We have no car loans, no mortgage, pay off our credit card balances monthly, and have never missed a bill payment. With all this, our credit scores are lower than some people we know who have no assets and chronically carry balances forward on their credit cards. The reason?…Apparently we don’t have enough credit cards, and haven’t held our cards long enough.
Credit Scores, as with the subprime mortgage market, are scams that were ooncocted by corporations to put measurements in place to drive higher near term profits. The heck with what it means in the longer term, and what it does to families or society in general.
Fortunately, I’ll never need credit again in my lifetime. And as for what that means to my credit score…frankly I don’t give a darn.
Its the borrowers fault for even trying to get a loan on a house they know they can’t afford. Some of this will come down to fraud because they over stated their income to buy the house hoping to flip it in a couple of years. Someone, might have been USA Today a few years ago did a story about a guy who purchased his first house (bay area as I recall). He paid something like $1.2M knowing he wouldn’t be able to make principal payments so he got an interest only loan and planned to flip the house “in a couple of years” and pocket some cash. Why in God’s name would a bank/mortgage company make that kind of loan? Its not a problem of the credt scores, its a problem with credit policies at financial institutions. They should have done the work to determine if he had the ability to pay and they didn’t.
Let’s see…. how does this work again?
I breathed… so a bank gave me a $700,000 loan to buy a house in… let’s say… Southern California… even though: a) I can’t prove I have a job, let alone any monthly income or even the legal ability to work in the United States of America; b) I can’t prove that I have even the first month’s payment in reserve somewhere; c) my credit report says my Social Security number was issued 3 years before my applications says I was born; and d) most lenders won’t even institute a QC department until the loan is 18-24 months old – THEN they might run a FraudGuard check on me. Besides… my FICO (or one of the other pimping credit scoring models) says I have a 700 SCORE…based on the 3 credit lines less than 12 months old that I purchased off a website; the highest being $1500 from some unknown or untraceable lender. Oh, and I’m 42 years old and never had credit before.
But I got my house… have lived in it now for 18-24 months and have NEVER made a payment on it, even at the 3.99% teaser rate. AND, I’m going to get to keep living in it for another 4 months (without paying for it). I’ll bet after that, they’ll come up with another way for me to not pay for it, too. Thank you, Uncle Sam.
FICO…SCHMICO! Who needs one? Do you know that if you change your name to something un-Anglo-American sounding, the US government has an official website that will help you get an almost Social Security number – one so indistinguishable that even the Social Security Agency can not verify it – or not.
Now… when and IF hard-working Americans with real credit histories can even refinance their current mortgages using their REAL incomes that are now less than half of what wages were 1982…, which our of last 6, still-standing. magnanimous lenders will even give them a loan? Yeah – those guys, who gave all that money out based on CREDIT SCORES….
Well, duh! Most Americans won’t qualify for new financing, a) because they missed credit card and car payments to make their mortgage payments, so the wonderful “Universal Default” clauses kicked in and cut credits lines to the balance owed on the card (and jacked up interest rates way above what any self-respecting loan shark would charge… oh, wait, that’s right! Credit card companies have put loan sharks out of business!) AND… dropped FICO scores through the floor! Or, b)they paid all their other debts, let their mortgage payments slide – and they still get the same freakin’ result.
It will be interesting to watch the mass hysteria in news headlines when lenders realize they’ve slaughtered their golden gooses (the American middle-class), because there won’t be enough of them left that can justify their current debt loads based on what are really are sound underwriting practices – which were thrown under the lead locomotive as it passed by – in favor of a perverted credit scoring system that is long past broken. These borrowers certainly won’t qualify for any NEW debt!
So let’s get real. The mortgage mess is just the beginning and certainly not unprecedented. Many of these “woe-is-me” borrowers were not unsophisticated. There is way too much public information available, for people to play ignorant. Many of them (or the brokers they paid horrendous fees to) played this game before, especially the old white men at the head of the food chain… yes, friends,… the bankers! Bless you, Angelo!
Still, the best of the worst is yet to come! It will be the credit scoring agencies that will crush this country’s economy. Their models are beyond use and are self-destructing in real time. To keep someone in debtor’s hell for 7 years is asinine, diabolical and Draconian. Most rapists, drunken driving murderers, stray-bullet child killers, law-breaking celebrities and corrupt Congress members spend less time in prison than a person who misses a Publisher’s Clearing House payment by 2 months – or dies before their $23,896 emergency room visit co-pay bill is paid off. But, by damn it – your heirs WILL pay – or their credit will be ruined for life, too!
(Yes – I’m a bitter, unemployed mortgage underwriter who’s seen too many job ads that tell you not to bother to apply if your unemployed mortgage underwriter).
It’s time to abolish the credit scoring agencies. They are a scourge on society, a dehumanizer, and, while we’re at it, a HUGE impediment to charitable and compassionate giving. Americans must now LIVE and BREATHE for their credit scores – afraid to take a chance on a business to try to make enough money to pay your credit cards AND your mortgage (it WILL be the LAST financial chance you take); afraid to help a friend or a loved one get a car so they can get to a job that won’t pay them enough to cover the car payment AND rent – if they can get either, or any of them, because someone thinks they ARE their credit score! (you , too, WILL be punished for helping); afraid to move forward, lest you upset the whims of …the credit gods!
We made this country magnificent long before credit scoring – we can do it again after it’s been abolished. Put the decision back into the hands of a real live underwriter person. The computer doesn’t have all the paperwork! How is it supposed to make an informed decision????
Uhmm, are there ANY political candidates out there listening?
Oh, heck. While we’re making America great again – let’s get rid of the two party political system, too. When you only have two options to pick from, you don’t have a CHOICE, you have a dilemma.
Viva la USA!
in 1933 THE NEW DEAL set up an agency to aid distressed hoeowners. The HOLC. IT p urchased over 1 millon mortgages.But it didnot hand out cash to lenders.The typical loan was for 5 years at 10%. The HOLC bought the loans at 40 to 50% discounts -what they were worth on the market.It then wrote a new mortgage for the lower amount for 20 years -amortized so the loan would be paid off in 20 years just like an FHA loan.I set this out last summer for barney frank-no reply-I did not think about tht political backlash from unhappy neighbors.
I wrote a more in-depth reply on the Blog pertaining to people abandoning their homes, now that they can’t afford the payments.
The simple causation of this catastrophe are the Bank’s and Mortgage Broker’s GREED. Sub-Prime/Stated-Income loans and ARMs, both very appealing albeit deceitful instruments of the market, were a way for the Banks to attempt making money from people that didn’t have that kind of money to pay out in the first place, yet they made these loans quite knowingly.
The ‘industry’ made a veiled, and poorly calculated and poorly hedged attempt to put the screws to the American public at-large. Due to their own greed and stupidity, Banks are now reaping their just-deserts and are in the position of screw-ee, for once.
You won’t find me shedding a single tear for the financial woes of banks, especially when the two top-dogs of Meryl-Lynch & CitiGroup walked off with $161 MILLION and 16 MILLION as severance!
I believe the blame should first off be on Wall Street. If there wasn’t someone to back these loans with MBS or all the other ways these loan are bought, then there wouldn’t be these subprime mortgatges. Wallstreet is the blame for the business side of this. if they weren’t buying these loans, they would NOT be available.
Next, equal blame should be on the borrowers! If you cannot afford something. Don’t flipping buy it! You have to know your own situation and hold yourself accountable. Most of these people who got subprime mortgages were paying off a lot of credit card debt, with their equity. all they did was turn around and spend more money on their credit cards. this is their own fault.
Anyone who was defaulted on should blame no one but theirself. It’s not hard to make a budget and stay within your means.
So in conclusion, there is fault on everyone. The market exploded so fast and companies made so much money that some banks got involved in less than ethical practices. They were growing so fast that they could not monitor everyone. BUT, I would place the most blame on Wall Street, a very very close second are the consumers who closed on these loans.
By the way, I am a mortgage banker and have been for years.
FICO scores make subprime borrowers look better than they are while penalizing prime customers who have much more equity and capacity to payback. Only now is FICO realizing that. Greene is to blame and the banks should stop using their service entirely. Loan officers should stop being lazy and judge each case by its merits.
There are actually 4 C’s to lending. Credit, collateral, capacity, and character. They all boil down to two simple ideas: willingness and ability to pay.
Also, in regards to the ‘blame game’, when the house of cards falls, everyone wants to blame everyone else. My guess is the next stage, which appears to already be in play, is that some heavy rounds of litigation will hit. Why not? The investors, banks, wall street, mortgage brokers, realtors, appraisers, and title companies all made their money? Sure they are writing off now but go back a few years and look at the record profits posted from some of the publicy traded companies.
The bottom line is the people who controlled the money behind the scenes that continually bought and sold mortgage backed securities did not do their homework.
Any first year banker should be able to tell you a no money down or 100% cash out loan to a borrower with a history of failing to pay bills or job hopping, who also has no savings and cannot document their income is a bad loan. I’d put my money on a craps table before I put my money into a 580 fico 100% LTV loan with no documented assets and no documented income.
This was a hysteria created by the Fed for not reacting fast enough back in 2003 when the markets started over-heating. Had they moved faster to ‘cool’ the economy at that time the housing market could have slowed enough to stem SOME of the losses we are seeing today.
In addition, lack of regulation in the products offered to uneducated borrowers threw gasoline on the fire. Qualifying a borrower off an interest only payment knowing full well they were going to have to pay principle someday? Sure it’s easy to blame the brokers and call them sleazy, but they do not control the money. They only implement the products offered to them by those who DO control it.
At the end of the day, loans should be risk based using sound judgement by individuals trained to understand that a credit score is nothing more than 1 of many tools at your disposal. Follow the 4 C’s and answer 2 simple questions: has this borrower shown a willingness and ability to pay over time? Answer yes to both and they should be worth reviewing further.
Lastly, always look at character. How many of the foreclosures today are from people who are unwilling (not unable) to pay the note THEY signed for? Character or lack of it, is unfortunately adding to the problem in ways we may never know. As Americans we are supposed to be setting an example for the world. What example are we setting now? Take on a loan, dont like the result, blame everyone else and walk away! Nice, real nice. If you dont have the metal to stand up for your own mistakes, dont get in the game!
The director of this nightmare we are currently in is the banks and their lust for profit. They were blinded by the cash we were throwing at them. I think they are getting what they deserve right now with all their write downs. Sadly thought, the banks will soon see some help coming their way in the form of our government checks. You see, the majority of us are going to use our stimuls checks to pay down debt which means the banks are going to be getting most of that money.
Imagine if you went to Las Vegas, and where immediately offered a $1M loan to buy poker chips by a loan shark. Normally you’d assume a few big guys in suits would make your life really suck if you didn’t pay it back. But lets say that these days the loan shark simply sells your loan to investors, and doesn’t really care if he gets payed back, after all he has taken his cut already.
For the gambler its a no lose situation, win at poker and you go home rich. Lose and you’ve got a bad mark from Big Jim’s Loan Sharking Service on your credit.
Ultimately if you want to place blame, its government regulators who let the whole pack of rabid dogs off the leash.
Try looking at 17th rate hick. Total unpresented in history. Chasing the gost of inflation which is still hidding however peopel are lossing homes. Banks and investors are losing billions of dollars and the Fed reserve is still lagging. Less rate hicks less of a adjustment on home mortgage loans. So how long are we giong to feel the pain and appload the Chairman?????? Thanks for the resession.
MORTGAGE, CREDIT, HOUSING CRISIS,
AN INSIDE PERSPECTIVE
By: Don Johnson, East St. Louis, Illinois
December 31, 2007
After realizing what a mess the country is in based on the illusion of value created in the housing market, and seeing the substantial decline in home values during the escalated pursuit of wealth, I feel obligated to present ideas to correct the imbalance we are now facing. From the inside looking out (often referred to as being in the trenches), who better to understand how this started, why this started (greed) and what we can do to redirect the economy that has completely tilted out of control.
Unfortunately, I believe we are just scratching the surface of the potential unrealized devastation and financial losses that we are about to face. The game is now very predictable revealing that there will be no real winners and many losers and the travesty in this case, it is clear the problem is not isolated and is affecting all people in most neighborhoods, not just the lower and middle class.
To introduce myself, I am a dedicated hardworking minority with great ambitions often thinking outside of the box, working in mostly distressed communities that are in recession and have been for the past 40 to 50 years. I already know what the rest of the many cities across the country are now dealing with as their neighborhoods deteriorate and the widespread decline in home values begins to erode at the so called “American Dream” of homeownership.
Owning both a mortgage company and a real estate development firm, I have been dealing with these same issues daily as families fight to keep their homes, scramble to pay their 12.9% real estate taxes and in most cases just struggle to simply survive. I have an insight and understanding of what happened, why it happened and where I think we need to go from here. The Fed and Congress are on the right track with interest rate cuts and proposed Stimulus Package however, the solution may simply lie in turning back the hands of time.
While the damage has been done and the spread of this mortgage meltdown will continue for years, we as a nation won’t have years to reverse the misfortune without sustaining major casualties in our neighborhoods. I know first hand what it is like to try to rebuild and stabilize a community in recession. Years of plummeting home values, job loss, and deterioration in confidence that result in the hardest hit areas being left with significant blight and distress.
Banks and Lenders have been slow to act in an effort to control the meltdown, blindsided by the sheer magnitude of foreclosures. Based on the few mortgages and troubled loans that have actually been converted to more reasonable fixed rate products, I see it will take years to head off the crises. The questionable loan products that were offered continue to result in homebuyers being required to pay more than they can reasonably afford. And rather than Banks and Lenders being able to intervene before the loans reset, they are overwhelmed in dealing with those that are already near or in foreclosure from numerous missed mortgage payments.
The Mortgage Madness:
§ Lenders began to create mortgage products that were left unregulated and were eventually abused.
§ “Stated Loan” products were available given a high enough FICO score, allowing homebuyers to overstate (stretch the truth) about their undocumented income.
§ “Teaser Rate Loan” products allowed homebuyers to buy more of a home than they truly could afford with lower upfront payments.
§ “Interest-Only Loan” products also allowed homebuyers to buy more of a home than they probably should, not having to pay down on the principal.
§ The beloved “Adjustable Rate Mortgage – ARM” that is often like walking into a Casino believing that you will be one of the few that actually walk out a winner.
§ The balance of the fraudulent loans and falsified documents for most part completes the list of options Lenders had at their disposal.
§ The “smart” homebuyers stuck with the standard 30-year fixed products exempting themselves from the pain and agony thousands and possibly millions of homeowners now face.
Supply and Demand:
§ Yes, builders over built based on sales, the sales fed by the illusion being created by homeowners, the homeowners being offered loan products created by Lenders, the Lenders that then passed on the illusion of value to investors, the value that never really existed.
§ So now I introduce a game, the game of Monopoly, first created by Charles B. Darrow in 1935 which has been played by over 500 million people throughout the years. My thoughts are not necessarily based on the game rules but based on the theory of separation of value by neighborhood. The higher priced more desirable homes on one street – “Boardwalk”, the upper middle-income homes on the next block, mainstream America being the more affordable area and then the bottom of the board, based on the home pricing, reminds me a lot of East St. Louis.
§ Homebuyers accepting suspect loan terms fueled the fire by buying more house than they should have, but of course, everyone wants bigger and better. I often wondered as I drove the 4 hour trip from St. Louis to Chicago through sprawling developments, how are so many people able to buy such nice large homes. Actually everything is considered nice and large given our simplified affordable starter homes we build in East St. Louis.
§ So the artificial demand fed the supply chain allowing consumers to buy housing that was overpriced and really only affordable given the creative loan products offered by Lenders, or so they thought.
The Facts:
§ During the year 2007, 400,000 homes went into foreclosure with borrowers feeling the effects of a knockout blow with others just throwing in the towel.
§ Foreclosure filings are up a staggering 75% from previous periods.
§ One out of ever 100 homes is currently in some stage of the foreclosure process.
§ Foreclosure help centers are receiving an estimated 4,000 calls per day for help and/or direction for dealing with the crises.
§ Home values nationwide are expected to plummet 10% to 30% before we hit rock bottom, given actual pricing corrections yet to be realized and potentially returning home values to their 2000 levels in inflation-adjusted terms.
§ Unemployment is creeping up due to job losses in the housing sector.
The Blame Game, We all Lose, from Main Street to Wall Street:
§ So now we have responsible homebuyers (the 30-year fixed guys) blaming the idiots that bought into the home buying frenzy using the ridiculous loan products. Well it was “their problem” (the idiots) until responsible homebuyers started seeing their 401k plummet and more so, the idiots losing their homes, devaluing the neighborhood causing more financial loses as home values also dropped. We now know it’s everyone’s problem and we need a solution and we need one fast.
§ So greed and stupidity mixed with an unregulated seemingly endless supply of loans (credit) has finally resulted in, in a recession? Look, it is what it is despite the Fed rate cuts and Congress (and President) not wanting to use the “R” word. Maybe it has not fully hit every neighborhood yet but it has hit most communities at this point. Stockton, California seems to be the extreme but you know, so is East St. Louis, Illinois and it has been for a very long time.
§ I have always operated my company and dealt with issues by first finding a solution to the immediate problem and then if I choose, I place the blame.
§ Banks and Investors are already losing, the billions in “write-downs”.
§ Homeowners are finding themselves “upside down” on their mortgages, their mortgages being more than the homes are worth.
§ Other homeowners that have mortgages that are scheduled to adjust up are unable to refinance as the loan products they initially were offered are no longer available given their FICO scores of under 620.
§ Other homeowners don’t have enough equity in their homes to refinance since the home values in their neighborhood have already plummeted by as much as 15% to 25%.
§ And nothing is really selling as there are limited buyers in the market, with sellers, lenders, and those with careers in housing really feeling the downturn of the now stagnant housing market.
A Congressional “Credit Pardon”
§ So most of us all agree that the housing market created the mess, and we need to figure out how to dig ourselves out. Homebuyers are being foreclosed on daily while others are just walking away given the inevitable. To blame them for buying into an illusion created by Lenders and Investors that allowed them to buy more house than they could really afford, let’s leave that issue to be debated at another time.
§ Back to Charles B. Darrow and the game of Monopoly. You start at “GO” and as you work around the game board, you are given opportunities to purchase more expensive real estate. Given the loan products offered, homebuyers bought (were led to believe they could afford) more of a house than they really could afford.
§ Buying that $350,000 house by stretching that payment with a “Teaser Rate”, “Interest Only” or “ARM” may have got them to that nicer street, but ruining their credit has completely taken them off the board and out of the housing market all together.
§ While Congress proposes a “Stimulus Package” that includes injecting funding as a short-term solution, would it make more sense to give those homebuyers that made the mistake a second chance, a second chance of buying what they really can afford.
§ This of course would only apply to borrowers that received the creative risky loan products offered by Lenders.
§ Families need housing, and the country needs as many responsible homebuyers as we can find right now to help absorb the inventory. So what will it cost the country to give a “Credit Pardon”? To allow for the homebuyer that got in over their head the opportunity to buy a $200,000 home rather than the $350,000 they were led to believe they could afford.
§ Keeping as many eligible homebuyers in the market by merely offering to Pardon their mistake on their credit report, giving them something more than any Stimulus Package has to offer, restoring their credit to a pre-home purchase period.
§ This would also be a wake up call to Lenders that have been slow to react to work with borrowers to consider a loan modification. Lenders would give more serious consideration to resetting current loan products to a more reasonable interest rate with a fixed term.
§ Restoring a credit score has more value to consumers, possibly with least resistance having to only involve 3 national credit-reporting agencies. As evident through the failed attempts to modify the existing loans with the thousands of Banks and Lenders that are already taking a beating, what about the option of the lesser of 2 evils?
The Real Benefit of a “Solution”
§ So the thousands of loans are already going bad, and we reach out to the homebuyer and offer a deal to them to “go out and buy another house”, you need housing anyway and we (the government) will agree to offer a structured Credit Pardon given certain terms and conditions.
§ We will offer a “Credit Pardon” (amnesty) to restore your FICO score to your pre-home purchase rating. If that rating allows you to purchase a home given a traditional 30-year fixed mortgage product, we will allow you to purchase that home with terms that it not exceed 35% of your gross annual income (PITI – Principal/Interest/Taxes/Insurance).
§ This would in-turn get thousands of potential homebuyers back into the market seeking more affordable housing. In essence, they would be playing the game of Monopoly in reverse, those in higher valued homes would (could) move back around a block or two until they meet the program affordability guidelines.
§ We also propose to impose a 7-year credit freeze preventing them from securing any additional unsecured credit, imposing a block on their credit report as a requirement of the program.
§ We allow for those that cooperate with their existing (and/or prior Lender) to liquidate their prior home and if they purchase a more affordable home, the Pardon on their credit would become permanent and the 7-year freeze would be released.
§ If they only purchase the more affordable home but do not work with their prior Lender to sell their prior home, the Pardon on their credit becomes permanent but the 7-year freeze for obtaining any additional unsecured credit remains for the duration of the 7-year period.
Rewarding the Responsible Homebuyers (and Renters)
§ So thousands of responsible homeowners are now upset because a deal was offered to the irresponsible. So we reach out to them, and instead of offering a Stimulus Package including $160 Billion in meaningless $600 checks sent to consumers that might spend, or save or payoff existing debt, we use those funds for “Interest Buydown”.
§ Interest rates are low and people are thinking about maybe buying a house, but when do they know that the housing market values have really hit bottom? Offer an “Interest Buydown” where given a 30-year fixed 5.5% interest rate, we allocate the $160 billion to buydown interest rates to say 3.5% to 4.0% on the purchase of a primary single-family residence. So now we have more activity stimulated in the housing market, those in 40-year old smaller homes are now buying the larger empty newer homes being left vacant because they are being offered interest rates they cannot refuse.
§ So there are also thousands of responsible renters that have been sitting on the sidelines watching this mess unfold, but now their Landlord is raising their rent, get them into the game by offering the same ”Interest Buydown” program.
§ And finally, the concept of the “Split” for households with numerous working adult family members. The previous concepts primarily address the issue of the now stagnant housing market and getting it stimulated, but how do we absorb all of the surplus housing on the market? Well, as we all know, extended family members living under the same roof have become a necessity based merely on the economics and the cost of housing. So with the interest rates too good to be true, now the extended family member housing situation will allow those family members to seek out their own individual affordable homes based on the very low interest rates and excessive supply of housing that has driven down prices. College graduates still living with mom and dad will be encouraged by mom and dad to invest in their own homes, time to leave the nest.
§ And finally, those that should have never been able to purchase a home will naturally filter through to take vacancies left in the rental housing market.
All are equally at fault for this crisis, including the government for repealing the laws regulating the borrowing, lending, and interest controls on loans. This repeal of controls seems to be the means by which a cashless society could be created. These controls were in place to prevent exactly what has been created, a society of debtors with no means to repay these debts. Even the government has been caught in this travisty of the collapse of the financial stability of the US. Our government has to now borrow more from other countries to cover the proposed rebates forthcoming because as a nation we are in bankruptcy and have no worthwhile industry or manufacturing that is necessary to create a stabile financial economic growth. Growth established by credit, not having any money, is dooomed to fail at some point when their is no more credit available. The Consumers are the ultimate part of growth in an economy and when the consumers are no longer able to pay for debts they have accumulated over the years of spending that they can’t repay is the ultimate colapse of it all. With the economy in a no growth situation the service jobs our economy is based on are going to disappear and with the loss of jobs, their homes, and toys. The credit cards are the next ones they will walk away from. Like the illegal aliens in this country, now the americans have nothing to lose by just walking away from all debts. They won’t be able to be found to take to court and prosecute and for payment of debts. Even if caught and prosecuted is useless just as it is with the illegal aliens that can’t be found for what they owe to the economy.
The collapse in the banks and financial industry is just beginning with worse yet to come. An economy of debt and indentured servitude that has been created will only be saved with the return of manufacturing jobs and jobs producing goods with top dollar wages can bring about any recovery. Outsourcing america and its productive assets and jobs was the start of it all. The government should have had the forsight to control and protect jobs in america and keep its big business manufacturing in its home country. These big businesses that have outsourced and moved to other countries relying on the american consumer is also going to cause colapse of the economy in these other countries. A vicious circle of greed and the fast buck are behind it all.
The government needs to re-establih the controls on the financial markets as well as manufacturing in america. The New World Order is a failure and will never work and neither will a cashless society. Credit and debt is not a replenishable natural resource that can be recycled indefinetly without major risks to the economy.
The american consumer has been shield from the dollar devaluation in the world and they think the higher prices are from inflation when in fact it is because of the dollar devaluation on the world market. The consumers rely on imports of all goods and services and products because we don’t produce them anymore so we have to import it all. With the dollar worth less in foreign currency that loss is added on to the products we buy and rely on from foreign producers. The worst made products are from China yet we are paying more for these junk products because the american dollar value is on a collapseing course. The american people don’t notice this because they are used to products made in america and the pricing and quality of goods produced in america were stable. With the advent of the dollar devaluation the inflation is coming because of the added cost of importing that takes more dollars to pay for the same or lesser product from a foreign country. What does this have to do with financial woes we have, everything. America has outsourced its ability to be a world leader and a reliable market that has no assets to lay calim to. The only assests america has are in the mining and oil resources because they can’t be moved. Manufacturing, science, industry jobs were a resource for the economy with good stable jobs. But that has ended. Even service jobs have been outsourced to foreign countries. When a consumer calls a company for support or service their calls are routed to India because the american businesses don’t want to pay the american work forces or government taxes. These upcoming federal rebates will only be good for a few bags of gorceries and that is where the majority of the money will end up. The groceries are imported also and when that dries up what will the americans have to eat? We are seeing only the tip of the iceberg of a complete economic colapse facing the american people.
This one will make the crash of 1929 look like a picnic compared to what is yet to come. Mexico already has its armed 23 million man army here and ready to pounce on us. Talk about terrorist cells, they are among us and sitting and working next to you at your jobs, and they will smile and sneer at you as they stab you in the back. We are ripe for internal strife and fighting for our lives. The chain of events and financial losses have been a curse with uncontroled debts by government, busines, and consumers has reached the pinacle of the ending for the american dream for americans. The illegal aliens are not caught up in this crisis of debt and are on stable ground with stable financial support that we so gladly gave to them. Our government and business has refused to recognize these undocumented illegals as a threat to America and its economy and all we can do now is sit and wait for the uprising and attempt at a takeover. The economic colapse and financial colapse is the window of opportunity Mexico has been waiting for. Mexico controls our manufacturing plants and food supply and america has burned it bridges with its allies. What ever manufacturing is left in the US is owned and controlled by foreign powers. Our armies are scattered around the world in places where they are unable to defend their own country. Our navies have limited supplies and no backups to fall back on with the advent of a non stockpiled supply for them, that is also of foreign manufacture. This blog may not make it to the pages as off topic or something similar but everything is coming to a blistered head with no real or proposed recovery in sight. The consumer has learned a hard lesson of going in debt for the sake of having and not needing and a long and painful recovery is in store, if we survive any outside onslaught of a takeover. We can’t get Bush and his administration out of office fast enough to make recovery a painless transition.
There’s no sale without a customer. No loan without a borrower. No appraisal without a sales contract, and no securitized debt without a closing.
The banks, Wall street, Fair Isaac, mortgage brokers, real estate agents and appraisers can be blamed until doomsday, but until a not so ready, willing and able buyer is prepared to sign on the dotted line for something he either doesn’t understand or worse, does understand but doesn’t care, there is no sale.
Who do you think I blame?
Any “credit scoring” is only a “proprietary (black box) statistical model” and the credit industry has been repeatedly told only works on a blackboard or in a booming (rising) market. For that matter, pretty much anything works in a booming market. The local, regional, national, and global variables together with the employment, consuming, spending, and market changes are impossible to factor reliable payment history into a single, double, or triple variable numerical single number that represents how an individual or family will pay their bills and whether or not those bills will be paid in a timely manner. The higher the score the better “risk”. This has been proven a total fallacy in the real world. The credit scoring industry has (and will) never reveal the model that is used to determine an individual’s “credit score”, but the entire financial industry and sub-industries (insurance companies) rely very heavily on a single number. It is a huge financial hoax. The credit scoring companies are the guns, Wall Street security firms hold the gun (pull the trigger), and the consumers are the victims.
You think it’s the borrower?
I don’t I think it’s all the large Corps. getting rich off cheap labor in India, China, and illegal immigrants and laying off US employees.
That will pass soon to because the people in China and India can’t buy anything at .04 and .44 an hour.
We’re going into a depression people. Wake up!
Drop the keys into the mailbox and move on, ya the flippers gotcha took a 139,000 dollar (on a good day) crapbox style ranch polished the turd and sold it for 349,000. Its the money pit every day a new problem. Anyhoo Im hanging out buy the wood stove (free heat) cleaning up scrap copper wire (why not its 3.25 a pound) in the a.m. I,ll hit the scrap yard. Be creative pay as you go and don’t buy stuff you don’t need.
THE BLAME GOES DEEP! First I am a Mortgage Banker, in the business for 20 years. We were very careful who we made loans to and what type of loans we made. We were and are still wrighting FHA loans. I showed and explained to my borrowers two and three different loans programs available to them for the purchase of their home. I explained every document that the borrower signed and the consequence of the loan that they had chosen. I did not leave my loans to doc signers that did not know how to explain to the borrowers what they were signing. During the whole negative amortization craze I wrote a total of three(THAT’S RIGHT THREE!) Each of the three had special circumstances. I counselled them for two months on exactly what would happen. They made the choice after learning all of the positive and negatives to the loan. As soon as their situation changed, I refinanced them out of their negative am loan and into a 30 year fixed rate. I showed all of the negative things that would happen when borrowers would come in or call and want to do the 1%, Pic-a-Payment loans. They did not understand the consequences of what they thought they wanted. Borrowers were getting all kinds of mailers, “TAKE ALL THE MONEY YOU WANT AND ONLY PAY 1% INTEREST”. What they were not being explained to is that the Brokers were getting a 3 to 4 point rebate selling high yields and long prepay terms. Homeowners were being screwed out of their equity from GREEDY Brokers doing these kind of loans and the Banks that were just as responsible by giving the huge rebates for the high yields to the brokers. Borrowers were duped into doing these loans over and over again. Now the Banks are the ones that are getting caught with all of the foreclosures. I turned many of these borrowers around by showing them the consequences of the type of program they thought they wanted. The borrowers that would not listen to me went down the road to the lenders that would do the loan for them.
Secondly, when you have account reps from major Banks and Mortgage Banks coming in daily pushing all of their loan products and fighting for us to send them loans offering loan programs with 100% financing to a borrower who is stated income with a fico score of 560 on a two year rate, to anyone who is breathing and can sign their name to the loan documents then I feel that the Banks are the ones, again, that are ultimately to blame. And as you can see, none of them are around anymore.
Do you know any banks that really help you out with savings and good information to the public. Nope,but they will take you savings that pays you just about nothing in interest and turnaround and lend the cash at some crazy rates in CCs and varable loans that they know would test your income and put both of you working for the Banks for the long turm. Greed just caught up. Sure blame the person borrowing the money but remember who should have never gave them that money. The people trying to get ahead in life to get a home walked in to a trap with a smile by the banks for there loans. But thats ok cause the goverment will bail them out and the banks can turnaround and stick it to us all over again with there HIGH RATES
Tell me why we even give these banks our savings. They give us nothing in return. LET THEM ALL FEEL THE PAIN.
Please read: Super-Imperialism by Michael Hudson rewritten in 2003, he explains the U.S. history and financial order from world war 1 until the present…who’s responsible? #1.Corporate special interest(taking jobs out of the country), if Americans had higher paying jobs, there would be no credit issue,now.., #2.Federal Reserve Bank, Greenspan lowered short term interest rates for to long and this inflated money went toward the housing market rather than the manufacturing and service job base of the country(as the winners of the hi-tech market invested those $ into the only easy money venture available, in other words, we’re top heavy with non earned recycled dollars based upon overpriced housing)..also, abit of inflation at the bottom of the food change will circulate back to the top, helping all folks in the nation..other than skipping the development of real dollars in the economy…my question to you? Do you really think, we would be at this point of fear if the money was used correctly? Sure, there would be a correction in the housing market, but, there would not be a correction in housing, insurance, investment banking and commercial banking all together…remember the Glass Steagall Act repealed of 1999. These are my concerns for America and the world.
As I scroll thru the comments I see “borrower spending beyond means” and “borowers have too much debt”. So, in December, “borrowers” didn’t spend as much. Wall Street and CNN screams “RECESSION!!!” Make up your mind!!!! Do you want us to spend and get into more debt, or do you want us to save or pay off the debt we have accumulated? You can’t have both….
Saying FICO is to blame is like having a credit card with a $5000 line of credit, running charge up to the max, and then blaming the credit card’s interest rate for you not being able to use the card. No, the interest rate is simply one small aspect of the card– you were the one that bought $5k of crap and have to pay the credit card company.
Same with home loans. FICO simply is an aid to lenders to help them judge credit-worthiness and ability to repay loans. That’s it. If lenders choose to ignore the risks presented by a lower FICO score, or some other factor outside of that FICO score comes into play, or the market is raising faster than people’s abiity to repay is increasing, the lender needs to adjust its rates, the credit issued, or not loan that person money.
Look, there is more than enough greed, ego and outright theft to go around. The fact is that economies, like civilizations, come and go…why is it that we spend all of our time analyzing everything and none of our time dedicated to honest hard work. It’s enough to make you sick…
THE BORROWERS! An Adjustable Rate Mortgage does just that, ADJUSTS. Furthermore, I find it completely ridiculous to leave it up to the banks authority as to whose payments will be adjusted (namely the people who make their payments on time) versus frozen (those who cannot make their payments). In effect, those of us with solid credit are being punished while those with bad credit are being rewarded. The population causing the housing crunch needs to read the fine print and plan for the future in addition to the now!
There’s some blame to go all around. Mostly it is the borrower. Some were looking to flip, some just wanted to maximize what they could get and keep it – can’t fault them for that. However, it is the bank’s responsibility to fully evaluate a potential customer for credit worthiness, not cut corners, and say “this is all we are willing to loan you”. But many banks just did what they could to get the short-term gain on loans for houses that they assumed the borrower would flip later, alleviating them of any long-term financial risk. I also agree that FICO scores and the like only exist to justify charging consumer MORE, not for allowing good credit risk customers to pay less.
It’s the borrowers! Sure the banks, the mortgage brokers, the real estate agents all share in it, but it comes down to the borrower. When I went for my new home 3 years ago things were flying, by the time I got to the open house it was sold. I went to a mortgage broker, told them I wanted to be pre-approved and have a letter stating that. My credit score came back at 804, the mortgage broker said: “I can get you a loan twice the size you are looking for, why do you want that small of a house, (it’s 2800 sq feet not that small). I had to fight to have him give me the amount I wanted on the pre-approval letter. I ended up switching brokers because of this. I bought the “small house”, because when “I” did the math it made sense. I didn’t listen to the other person. Time for people to take responsibility for their own actions. I won’t need a bailout, I took a fixed,why should I have to keep paying and others get bailed out. Let them lose their house, sell at a loss and buy something smaller, lesson learned. Sorry, I see all these people around me driving brand new fancy cars, wondering, how? Most are leased, sure, get the nicest, newest, but never actually own it. Same thing as the housing market, they want the most for the least, until it’s time to pay the piper!
There are numerous individuals that can be to some degree blamed for this mess. I itemize them as follows based on “most to blame” down to “least to blame”:
1. The Borrowers
Ultimately, it is the individual incurring the risk. There are people in Vegas that leverage their home on a roll of the dice. If it comes up craps, I don’t think I will see too many people blaming the casino for “letting him do something that stupid”. A person took a risk and either they succeed or fail based on that gamble. Pure and simple. And let us not forget that a large amount of property purchases during the runup were a consequence of speculators.
2. The Lending Industry
However, I do not blame them in the same sense as others have stated pertaining to who they lend to. I blame them for the idiotic CDO and derivative structure that was created to combine varying debt obligations into packages for resale. They got caught up in the euphoria that was engrossing the speculators but quite frankly, as experts in their field, it should have been extraordinarily easy to see the true nature of this bubble. But their own lack of oversight caused this bubble to balloon far further than it otherwise would have had they exercised some sense of fiscal responsibility and restraint.
3. The Government
And now, I don’t mean just Dubya. The seeds for this debacle were planted long before he came to office.
The first error on the government’s part were the creation of Fannie Mae and Freddie Mac. Two supposedly government sponsered entities that would purchase debt instruments from banks and function as the defacto holder of most mortgage securities in this country. The problem there is, like all good intentioned things, that reduced the need for the banks to exercise some level of fiscal restraint when they issued loans. Since they knew many of these loans would eventually be handed off, there was no accountability.
The second and more eggregious error on the government was the general nature of the foreclosure code and how it functions. Currently, one can literally make a massive default (in the hundreds of thousands of dollars) with their home purchase and emerge scott free, minus a good credit score. So the accoundability on the part of the borrower was entirely removed. This essentially provided a mechanism whereby people could essentially leverage massive ammounts of funds to purchase real estate will little to no risk to themselves. And with further lax lending standards, no doc and no down payment loans merely exacerbated an already serious problem. Now we have websites encouraging people to simply “walk away”. (I believe the idiots at ACORN are sponsering this) So with no accountability and no oversight, I have to ask why this bubble was in anyway a surprise?
There’s plenty of blame to go around and would place the percentages as follows:
30% on credit reporting agencies because their formulas do not take into account HOW credit is being used.
Someone who has maxed out their cards putting on an addition to their house is in a totally different situation than someone going on a buying binge for the latest and coolest stuff.
For example, many credit cards offer low cost loans that people can take vs paying 3-4% more for a typical bank loan. In this case it makes perfect financial sense to tap to lower cost of credit but the credit reporting agencies penalize such responsible activity.
30% on borrowers for not understanding the product they purchased.
20% on lenders for pushing a myriad of loans that w/o care that the person can repay the loan.
20% on the press for hyping the up AND downward trends making people that they missed the boat on the way up and proclaiming gloom and doom on the way down thus keeping people from entering the market.
I think both groups are to be blamed. Earlier last year I met with a loan officer and he was really pushing me to get an ARM loan that I knew I would not be able to afford in the future. I opted to a fixed rate I knew I could manage and settled for a lesser house than what I wanted.
The point is that the borrower should know when to say no and walk away but the loan officer should not being working to earn commissions on bad deals like some starving used car salesman. FICO, to me, is at no fault.
I really blame these banks for turning a blind eye and in most cases promoting this practice of ‘food stamp’ loans. A person making 40grand a year somehow gets a loan for $250,000 on a how worth $180,000 – you do the math.
One of the reasons people took ARM loans is because they thought the house they are buying will appreciate much much more in a short period of time. In reality, nothing will go up forever. People get trapped…
The borrower for the greed. The Banks and loan companies for catering to this greed with outrages loan products. Let the market crater on it’s own and recover naturally with senseable housing prices and a return to traditional mortgage products, i.e 20% down, payments not to exceed 28/33% monthly income. I say no to any rescue package that rewards mistakes and keeps housing prices artificially high.
Credit scoring is the biggest rip-off! It’s purpose is to help creditors get position to justify raising their rates on consumers. FICO doesn’t use a level playing field. They may judge 2 different consumers inappropriately. For instance, say two consumers each have 12,000 in debt but one makes 40k/yr and the other 90K/yr. Their ability to pay is not equal but a FICO score won’t reflect that!
I believe both the FICO score and the lenders are to blame for the mortgage meltdown we are in. They failed to have a good risk analysis when they issued mortgages to risky borrowers before, and now, they are making it worse by tightening the lending rules for good borrowers and hurting their scores. I personally got hurt in the refi process because my FICO score dropped due to too many inquiries. I was shopping around for the best value, by comparing not just the rate but also closing costs and I kept on allowing lenders to check my credit which hurt my score.
FICO is to blame because its FICO formula assumes that too many inquiries must mean someone is being turned down, therefore penalizing the consumer, and not assume that the consumer is financially savy and he or she is the one turning down the offer.
This is like a conspiracy between the lenders and FICO to charge higher interest rates because the lower score puts you in a risky category.
Not to mention that they don’t look at factors that really count such as : on time payments for credit cards, loans, mortgages, but would hurt you if you have a high balance to credit limit ratio. Again, this is penalizing the consumer because it assumes the consumer cannot afford to pay the card off, when the consumer has chosen to take advantage of a special 0% financing for 1 year and invest the money somewhere else.
It is time we get a better credit analysis system and stop hurting the consumers and our economy if we want to go back to being a supereconomy in this world.
I firmly believe that the barrowers are the ONLY ones to blame. Ultimately, my wife and I are responsible for making sure that the commitments we make (like loans, mortgages, jobs, etc.) are the right ones for our family. I’ve gotten up and walked away from poeple I felt couldn’t explain to me the risks of an agreement. If we don’t fully understand a commitment, or have doubts as to whether or not we can make it work, we don’t do it. It’s that simple. It is beyond me that people didn’t realize how high their monthly payment could rise. The exotic loan types that were created are great options in the right circumstances. But when people would get zero down interest only loans and not realize the risks they were taking (like that their house might be worth less than the amount of the loan after a few years), they’re asking for trouble. How I see it, the banks and the barrowers made agreements, and the barrowers couldn’t honor their part of the agreement. The defaulting barrowers need to grow a spine and take responsibility for their lack of judgement.
Greedy people are to blame. Banks, mortgage brokers, rating agencies, realtors and of course the “poor victims” the borrowers. It pains me to see $1 in tax money to go to any bailouts. Banks need to fail and mortgage brokers and borrowers that commited fraud (like lying on loan applications) need to go to jail. The rating agencies need to be sued and taken for every penny they’re worth. The NAR needs to have their monopoly crushed.
We need to make up our minds if we want capitalism or solcialism. Right now we have socialism for the banksters. Privatize the gains and socialise the losses.
The blame is easy to find,Wall Street,irresponsible home buyers,scum bag loan officers who blatantly falsify documents,etc.But the thing is this .
The maniac financial wizards came up with a way to stimulate demand-let’s push option arms and subprime loans to the masses,so that the builders can continue to print money.Next,a rating agency deems these mortgage backed securities A rated .That’s where the SEC should have done it’s job,it failed to regulate a grossly mislabeled mortgage backed securities business .If it had done so,supply of this dangerous product would never have grown so quickly .This is a classic case of govt. asleep at the wheel .I suggest that someone put the SEC on the stand,and ask them if they passed over this because political patrons were involved
FICO is not to blame. I have plenty of disagreement with some details of FICO scoring, but Fair Isaac and FICO scores are not to blame.
A person with excellent credit should not be automatically approved for any loan they request. Would any thinking person approve a loan for a $1 million home with no down payment and an income of only $30K a year simply because their median FICO score was 812? I would think not, and that’s where the role of the lender appears.
It’s the lender’s job to assess, among other things, whether a particular loan is suitable for a particular person. Unfortunately, whether prime or subprime, good times or bad, almost any lender is going to try and talk you into a bigger car or home. Simply put, a larger loan for a larger thing means a larger payment with more interest to the lender. Just as the fast food chains will ask whether you wanna SuperSize your order, so too will a lending professional. Lenders are selling you something, and salespeople generally have no professional interest in urging restraint. If they don’t sell to you, someone else will. And if you’re buying from them, they don’t know when you’ll be back by so they wanna get all they can while they’ve got you.
Some want to blame borrowers, and ultimately they are responsible for the loan payments. But let’s examine their motivations. Did many if any borrowers set about to default on a loan? Might be a few, but most I suspect just wanted to try and make a better life for them and theirs.
If one doesn’t already have a 20% percent down payment, then ya ain’t likely gonna have it next year when your rent goes up 15%, the price of a home goes up 9%, and your income goes up 3%. So take a wild guess as to what’s gonna happen.
People decide they’d better buy a home now, while they still can, take whatever deal they can get, and hope that prices keep rising. It will give them some equity to perhaps later qualify for a better loan. The alternative is to pack up and move to a smaller town where you start a new job for less money in the hope that you’ll be able to buy a house there.
Long gone are the days of the Bailey Building and Loan, but the sentiment of George Bailey to Old Man Potter is just as relevant today.
“.. this rabble you’re talking about, they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?”
The BORROWER! Too many people didn’t have the presence of mind to look into the future. It;s indicative of our “minimum monthly” (payments that is) society. Even more, these people helped artificially inflate the housing market prices because they overpaid, under the short term thinking that “heck I can afford this overpriced house because my payment will be low”. Personally I’m glad their losing their overpriced homes. Start living within your means people! As a homebuyer a second time around, I’m also stuck with the effects of their ignorance, haggling with people thinking their home is worth far more than it should be. I am tired of hearing about these people not being ACCOUNTABLE for the loan they signed, and additionally being bailed out as if they were a helpless victim. What is even worse is the fact that foreign countries have bought our debt and backed it with commodities.
Ultimately, borrowers are at fault too much debt, no savings. Banks, RE Brokers provided access and created the loan products the media created an image of living beyond your means as typical. Sadly, many peole with a short term view of life fell into the trap. Moving forward credit will be far more difficult to obtain slowing economic activity for many years.
It is a joint fault. We have mortgage companies that are just interested in making money. Mortgage companies use automated decisioning to determine many decisions on applications. When you have automated approvals that show a DTI of 60%+, that is a major problem. Stated programs that allow up to 50% DTI. THe approval is based upon gross income, which is very deceiving. First time homeowners should be required to go through a homebuyer financial class to determine what they wcan afford instead of allowing the mortgage company to determine what they can qualify for. It is so disappointing that we allow stated programs for salary borrowers when that should never be the case.
I have been in credit since 1996 and I can say that credit scores do not predict anything. I have seen people with high credit scores go belly up when the gravey train stops so the scores are just another way to selectivly give out rates. It is just another legal scam.
It is most certainly the lenders fault. I like adjustable rate loans, but I have learned to read what I sign. With rates near all time lows, any bank that loaned money to someone without checking to see if they could afford the payment when it reset was being greedy and deserved to be burned and burned hard, just like any other business. they have the fees to cover it. There should be no bailout either. after the ashes clear, you can bet most people will not sign another loan document without understanding what it says, but you never know. I do agree that there should be far more taught in high school about finances, maybe a little less on the English literature classics, eh?
Being a mortgage banker, with 25 years experience in the business, my company decided in the mid nineties that we were not going to enter the subprime business, I feel that I have great perspective on the current credit crisis.
First, I blame Wall Street! They saw an opportunity to do what they do best, trade bonds (CDO’s) and make money. If Wall Street had not become involved, we would not be in this mess.
Secondly, I blame mortgage brokers! The only consideration they had was to make money from their borrowers and they would go to any lengths to do so including mortgage fraud. They marketed the products and pocketed the money from the closing costs, with no risk what-so-ever. They never cared about whether the borrowers should or should not borrow the money. As a matter of fact, many brokers mislead borrowers, telling them about the low start rates, the tax benefits and finally that in a year or two, they could refinance to a fixed rate before the loan would reset. (The equity that you build you will rescue you in the end)! Great sales pitch to capture future string of business.
Finally, I blame the borrowers, (minimally) because they did not take the time to fully understand what they were getting into. Much like the marketing of car sales people, the only thing the borrowers looked at was the house and the monthly payment today. They never understood the risk they were taking on. Further the mortgage brokers never told they the about the risk. Bottom line, greed by the mortgage brokers and Wall Street essentially caused this mess. In retrospect, my company by trying to be responsible lenders, who knew about the 3 C’s of lending, and cared about our borrowers, left a ton of money on the table by not participating in what is now a fiasco, so much so that our entire banking system is in jeopardy!
Is your credit score 666 or higher? Great, you can borrow money @ reasonable rates to buy an education, buy a home, buy a car; and to sell your services to employers (ie, get a job). If not, then tough luck, convert to Islam, move to Iran. The American Dream isn’t for you.
Lets face it, the image on the TV or internet (the ads) says buy, we buy. We do what it tells us to do. Are we fooling ourselves? Are we deluded? Isn’t it about time we stop borrowing just because the TV or internet tells us to and accept that fact that if we can’t afford something, we simply can’t afford it? If you can’t afford a house at $300,000, why sign a deal stating that you’ll pay $600,000 to $900,000 for it? Whats next, the end of currency, a deal where we can keep our FICO above 666 if we accpet a mark on the left hand or forehead. It won’t surprise me if its the Muslims who disappear some day. Perhaps the only reason they are fighting us is because we are trying to force debt on them, the FICO system, the mark, etc. Hope this was of some value, if only entertainment 
Think about this;spend,spend,spend!Everybody is to blame.We are all in debt with autos,house,medical, credit cards,education,taxes,and the list can go on and on.US government’s debt;13 trillion and consumer’s credit card debt;1.3 trillion only.Face it How’s to blame?EVERYBODY!!!!!
INSTEAD OF POINTING FINGERS AT THE BANKS,LENDERS, WALL STREET AND WHO EVER ELSE WE CAN THINK OF, WE SHOULD BE ASKING OURSELVES WHY DID THIS HAPPEN AND HOW CAN WE LEARN AND AVOID THIS IN THE FUTURE. NO MATTER WHO YOU BLAME IN THE END ALL OF THESE ARE RUN BY THE AMERICAN PEOPLE. THIS HAPPENED BECAUSE OF AMERICAN GREED, ARROGANCE, AND A PITTIFUL LACK OF EDUCATION.I WOULD BE WILLING TO BET THAT MOST PEOPLE IF ASKED A SIMPLE MATH QUESTION COULD NOT SOLVE IT WITH OUT A CALCULATOR AND A LARGE PART OF THOSE WITH CALCULATORS WOULD GET THE MATH WRONG. IF YOUR INTREST PAYMENT IS 400.00 ON A 4% LOAN AND THAT LOAN ADJUSTS TO 8.25% WHAT WILL THE INTREST PAYMENT BE? IF YOU CANT FIGURE THIS OUT IN YOUR HEAD OR WORSE WITH A CACULATOR THEN IT IS YOU WHO ARE TO BLAME!!!
I think three things have caused the economy to slide: President Bush, corporate greed, and consumer materialism in general. Also, I think home owners expecting unrealistic prices for their homes. Mortgage companies cooked their own goose and I have no sympathy for them-(corp. greed)
I heat what you are saying, Mishap. My point is that one’s credit score whould not be hammered because of a single inquiry. Indeed, it should not be affected at all if the purpose for the inquiry is not for an application for credit.
Conider this: You move to a new town to take a better job. You need to get an apartment, establish utilities, open a new back account, etc. Each of these entities are going to run a credit report on you. Maybe you’re applying at several apartment houses at the same time (as one would do in NYC). Why should your credit score go down because of these perfectly legitimate transactions?
Believe me I have long-term credit. I’ve used an AE card for 20 years and have been with the same bank for 30 years, where I have made and paid off serveral auto and consumer loans. My pattern of credit usage and purchases clearly indicates that I am a highly compensated worker.
Eqifax is who told me why my FICO score went down. They say that Free Issac has no way of determining why an iquiry is made. This is one of the reasons the FICO score has had quite a bit of criticism heaped on it over the years. It is objective, oof course, but lenders make decisions based solely on this number, when they should be looking at many other aspects. The best method is to know your borrower and to have a relationship with him. The last time I financed an automobile was in 1998. I called my bank’s loan department and spoke to a loan officer. He asked how much money I wanted to borrow and I said that I would not pay more than $25K for the car. He immediately told me that my loan was approved and to simply fax the buyer’s order to him when I was ready. That’s all there was to it. He had all the information about me he needed right there on his computer screen; he could see my history with his bank and knew I’d been a good, long-time customer. We need to get back to doing business this way, since banks who operate in such a manner have the lowest credit default rates.
As a Mortgage Broker, I can tell you first hand that a large number of customers were turned down because the Mortgage broker or loan officer did not think the customer could afford the monthly payments. When we would try and steer them toward a home in there price range we would learn that the customer went down the street to a different lender (sometimes at the instruction of the real estate agent sometimes not) to get a loan for a “house they just couldn’t live without”.
The most common answer when we would get from them was “we just loved the place” or “my wife had to have it”. When questioned about what they would do in 6 months to a year when they couldn’t afford it they said “we’ll deal with it then”. I think that these people should be allowed to loose their homes and learn from their poor decisions and that also the lenders that had some of the dumbest and truly foolish standards should be allowed to “feel the pain” of there poor decisions as well!
If you give an alcoholic a drink, do you blame him for drinking it? If you give money to people, do you blame them for taking it? The mortgage system has checks and balances to prevent this kind of mess from happening. The first check was that the consumer needed a good credit score.
The second was a fair appraisal of the house.
The third was a broker to check the facts of the mortgage application.
The forth was a bank that needed 20% down payment to secure its loan.
The fifth was investors to buy these loans based on acceptable risk.
The sixth was rating agencies like S&P, Fitch and Moody to realistically assign risk to these mortgages.
If the rating agencies were doing their job and giving the obscure mortgage products like CDO’s, CDS’s, SIV’s and RMBS a fair risk rating ( they gave them AAA , some are now CCC or worse) there would not have been investors to buy this junk paper. These investors (pension funds, credit unions etc.) trusted the rating agencies risk ratings and that they were investing our money in secure paper. The source of the money for mortgages was from you and me and foreign countries. All were fooled by the risk rating assigned to these mortgage products that were created by the banks.
I could blame the rating agencies for this mess because they were the enablers. If they would have given the mortgage products a fair rating for this junk, the investor’s money would not have been available to loan for mortgages (no liquor at the bar). Yes, everyone was at the party and drinking at the bar and having a good time! The real blame goes to the government who we elected to create oversight agencies like the SEC and the FOMC to watch out that everyone plays by the rules. They needed to step in and stop the party before it got out of control. Just remember that the government was elected by us! Get involved in the next election and throw those people out.
The blame lies mostly on the borrowers. They were desperate for something the could not afford and instead of saving money, building credit, and doing it the right way they took the easy way and got in way over their heads. Borrowers should have heeded golden rule B. If it sounds to good to be true, it probably is.
The only reason people took these loans is becasue they thought the house they are buying will appreciate 25% in first 6 months and on and on. They did not buy to live there or raise their family but for greed. Borrowing money with ARMs beyond capacity to repay after resets was just plain stupid for homebuyers and banks for giving them those loans. Their should be no bailout of anyone in this mess but we all know that it’s coming. Housing has to correct another 20% and in some areas even more to make things start looking affortable!
The borrower owns some of the responsibility, but most I think lies with the banks. They saw an opportunity to try to make more money off of people and got burned. I don’t think it’s the gov’t’s responsibility to bail anyone out…as the above post wrote, people are (should be) responsible for their own finances and knowing their limits. That many people don’t own up to this concept has been evident for years, just ask any credit card issuer and the myriad of “financial advisors” that have sprung up in the last decade or so. I don’t know if people just aren’t being educated enough about the ‘real world’ in grade school and how these thing work, or if people in general have become dumber…possibly a strong mingling of the two.
Whatever the case may be, I’m sick and tired of big business (of any sorts) doing anything they can, trying not to get caught, the gov’t turning a blind eye (or in the current administration blinding their own eye, and binding a hand behind the back) and donning the (self-interest) cloak of laissez faire, forcing us (taxpayers) to then have to bail out all of these dopes and conniving bastards, and then to deal with the inevitable knee-jerk policies and bureaucratic oversight which usually goes overboard to compensate for the initial undersight.
I have to wonder if I am/was grossly naive to think that somewhere along the line we went from ‘Of the people, by the people, for the people’ to Of big biz, (paid off) by big biz, for (the profit/protection of) big biz.
The group to blame for this mess is the rating agencies. All the CDO’s that were sold to the investors were rated as investment grade. If these investment vehicles were correctly rated, there wouldn’t have been the demand from the investors and therefore, banks and brokers would not have created the supply. Supply and demand folks. It’s just that is this case, the rating agencies controlled the lever, and they left it open.
Wall St. created the mess with subprime CDO time bombs. They made billions in using their ginsu knives and dividing into traches.Finding them is like playing “Where’s Waldo” The Fed prostrated to Wall St. at the expense of Main St. by lowering Fed rate and driving up equities at the expense of bonds,inflation and the dollar. If mortgage rates were lower, the mortgage industry would clean up the mess in short order and restore balance sheets of big banks. Wall St. has the political juice and will get a slap on the hand and a Fed bailout at taxpayer expense.Two thirds of the economy is consumer driven.If Main St. feels squeezed Wall St. will also. Want a time schedule? 3rd and 4th quarter of 2005 were largest originations of 2/28 Subprime mortgages. They are adjusting interest rates now.We are now seeing the tip of a trillion dollar iceberg. The other shoe hasn’t dropped yet.
I blame GREEDIE—- Home Builders, Mortgage Brokers, and Real Estate practices. How does a 1st time home buyer with an average job buy a 200K house with NO money Down and sometimes even get CASH Back at closing……..
I guess I’m just Old School, don’t buy anything I can’t afford to pay for or pay off is a reasonable amount of time. I was taught that DEBT is BAD and has no future
Who do you think deserves the most blame for the credit crunch? Borrowers? Banks? Wall Street?
Most of the blame falls on the lenders (Wall Street) who provided the capital to inflate the bubble; without them, there could have been no bubble. These are mostly very wealthy investors: billionaires, hedge funds, investment banks, private equity groups, etc. They hungrily bought CDOs and other mortgage bonds in efforts to earn higher and higher yields off of poorer and poorer borrowers. This was their most costly mistake.
The banks and other mortgage brokers were enablers of the bubble inflation, making loans of this readily available money for fees (no risk to them). This was their mistake. They will lose money on any loans that they made that they did not resell before the exits closed.
The borrowers saw what looked like a good deal and took it. Their mistake was using large amounts of borrowed money (often with no money down) to rapidly bid up prices (often against other borrowers doing the same thing).
This drove us to the situation where the median home price ($210k) is too high for the median family income ($45k/year). Median home prices need to come down another 14%, to about 4x annual family income, which is where affordability is at its limit. Of course, some areas will see much larger declines.
It looks like 1% of home buyers will default, endure pain, and lose their homes, but most will not lose much (if any) money, because they put little or no money down.
Most of the losses will be born by the billionaire lenders, so this will be a very democratic bubble deflation.
We’ve been through this before: redistributing money from the rich to the poor. I guess it’s the American way.
This system was not created by borrowers, so don’t blame us. The real estate and mortgage industry has turned our American dream into a nightmare. The same companies, who monitor our credit, sell credit monitoring service. Records are never up to date; you know why.
This entire mess lies solely on the consumer. Lets face it; we live in the “Me first” world and people buy into the media blizkrieg of buy, buy, buy. I made 71k in 2007, yet can’t buy a respectable house. Why? because I made stupid choices in the years past and after six years of digging myself out, I am almost to the point of home ownership. My lesson learned is simple: Save until you have an emergency fund that will cover 3 months of expenses, use cash for everything or only charge what you can pay off monthly, and stay away from sucker deals and promotions that trap you into financial chaos. The crisis we face now will only disapate if consumers educate themselves and undertand the difference between a good deal and a rip off.
Absolutely the Fault is all of the above. However, the borrower is not nearly as informed as the Fed or the Lenders. Borrowers tend to believe what they are told, which does imply stupidity or naivety. Nonetheless, if you set rates and programs to have a lot of ’stupid’ people take out loans, doesn’t that make you stupid too? Assuming that the borrower understands every aspect of a complicated loan is just as naïve. So to say that the borrower holds the fault alone is preposterous. This is also apparent because the Mortgage Crisis is hurting everyone, the borrower, the lender and the Nation. If it was just the borrower to blame, it would probably only hurt the borrower.
The fault lies in many places.
First of all note that they now do not have every one in school take personal finance. When I went to school, everyone did it in 8th grade, and we learned about loans, stocks, bonds, etc. This new generation does not understand finances.
Next, the people were led to believe that it was the right thing to do. Borrowers needed some good common sense to know not to take out a loan that when it resets in a few years, that they will not be able to make the payments. Never get into a loan that you can’t pay back.
The house situation is the next problem. These “flippers” come in from california, buy an old dump, put some paint on it, and sell it for a fortune. And dumb people buy it. And then all of the neighbors think that it is wonderful that their house values have gone up. How dumb, when all it really means is that their taxes will go up.
And then the banks are dumb to make loans that they know the people will not be able to pay back. When that interest resets, and it will, then it will be out of range. And they should know that the price is way to high and it will come back. But all along the way, the people that should have known better, pushed on because they were going to get a bonus or commission.
This is a free market economy, and the government should keep its nose out and let the stupid people suffer and then the smart people will still be in business.
The reasons these loans are so bad yet so widely-held are simple. Appraisers, lenders and risk-raters had a fiduciary responsibility to accurately represent the borrowers’ creditworthiness and the backing assets, but they were induced not to do so.
Never trust mortgage brokers and banks. They are in the business to make money from these transactions. Consumers should educate themselves and look after their own interests. As a general rule, people should save enough (ten percent at least) in order to buy a house, this is called fiscal responsibility for your own security. If you cannot put down at least ten percent for a house you would like to buy, just be a renter with less worry. This will not get you into the trouble in first place. We have bought three houses in last fifteen years all with twenty percent down payment. When we bought our first condo, one of us was unemployed at the time and one made less than 30K at the time (1993). However, it was a good time to find a foreclosure condo. We managed to put down 20% (most of our savings). It was very difficult the first year. Looking back, this investment has given us the best return for our money (six times) in fifteen years. We believe hard work and living within our means. Saving as much as we can. Only in difficult times, you will find the best return for your investment. If you cannot save, you will most likely buy high and sell low in either real estate or stock market.
Stop blaming other people, watch your spending and start saving. I hope when a future down market arrives, you will be able to take advantage of the market rather then let the market takes you down with it.
Good luck!
To Fair Credit Act, America:
Your score went down temporarily b/c of the inquiry and your complete lack of credit mix. Inquiries lower credit b/c it looks like you’re seeking credit. Apply to a hundred places and your score will fall a lot.
Give it a month or two and it’ll be back above 720. Also make sure you checked the same bureau (and the same score) otherwise the story may not be the same.
The FIC score measures your likelihood to pay off credit. If you have no need for credit cards, loans, etc, then ignore it all you want. I’m sure plenty of immensely wealthy people have atrocious scores b/c they don’t need/use credit.
If nothing else, your story shows how accurate the score is in predicting your credit usage. If a mortgage is all you ever had, then issuing you a credit card may not have the same effect. If you have multiple forms of credit and long payment histories on all of them, your score would have taken a smaller hit on one inquiry.
As for the story, the scores are only one part of the picture that got blown out of proportion b/c lenders started ignoring everything else. If a person came in w/ a 750…why would they have to do a stated income loan? Lenders who turned a blind eye and borrowers hooked on the Kiousaki way pushed this. Lenders ignored their own score minimums to increase yields and it turned into a race for the bottom.
You can ask for money all you want, it doesn’t become a problem for eveyone until you are actually given the money by the Banks. They are 98% to blame for this, why the high standards now? Where was ‘credit risk’ when the Banks were raking in profits? Where are all those profits now?
We should teach our kids two things as parents: 1- Like bird flu, avoid at all costs credit cards with variable interest rates and 2-stay clear of mortgages with adjustable rates. You’ll get a better deal from a Gambinoloan shark. Instead stick with Credit Union credit cards and fixed rate mortgages.
The blames are shared between borrowers and lenders. It is the borrowers’ own stupidity and greed that let them “wannna” that huge-but-so-pretty house now whitout checking first that they understood the concept of having to pay of it. And it is the lenders’ own stupidity and greed that let them “wanna” that huge new pool of interest income without checking first that the loan didn’t go over the standard 30% of income ratio AFTER the rate reset.
its always easy to point fingers and spread the blame. the unfortunate thing is that the economies differ from area to area. i want to purchase a home. i can’t though. a home that i can afford has to be from 60 – 80 thousand. now i can find that home, but it is in a neghborhood that i don’t want to bring my kids up in, or the home will need a ton of work. i don’t get many options for purchasing a home. so is it my fault when i purchase a home that is slightly out of my price range, when they don’t exist in my price range? people say its great how home prices keep going up. what did you think would happen. i highly doubt that peoples average paychecks have rose as fast as the prices of homes. sooner or later it was going to happen, where people were going to be purchasing homes they can’t afford, because the ones they can afford don’t exist.
The industry like so many has layers and layers, banks, mortgage companies, greeday pushy real estate organization, and brian dead bottom line only mass builders. If they had any responsiblity, or moral compass, they would not have let greed be their guiding light. They get their money by any means possible,then the buyer becomes an invisible sucker. Sign on the dotted line with the low lifes in real estate, and financial industries and you take your chances. None of which are really appetizing.
There needs to be an investigation against the appraisers. They gave faulty information based on “everyone” else’s house prices going up. Well, they are the same people lowering values. The banks should employ the appraisers. It might sound like a conflict of interest, but the bank will be more cautious. The majority of blame goes on the borrower. Why would you buy a house if your credit sucks. Wait a year, get your credit better, then apply for a loan. It’s not the bank’s fault your credit is bad. FICO just reports the results. Now most people are going to have an even harder time getting a loan in future if they just walk away from the house.
How can we blame banks and lenders for ALLOWING us to do what WE CHOSE to do?
We could have chosen payments based on fixed rates but WE CHOSE to gamble by taken lower ARM payments and hope that they didnt go up. Adjustable rate mortgages adjust – it says so right in the name.
We could have bought a lessor priced home but WE CHOSE to buy our dream home instead.
I see posts suggesting that the banks and lenders should have known better. NO, WE SHOULD HAVE KNOWN BETTER!
I can not blame someone else for allowing me the opportunity to do what I CHOOSE to do beacuse I made the wrong choice or failed to consider all the risks.
Borrower and Banks are at fault, as well as the feds. Prime was kept to low for to long. I work at a bank and everyone in town got a HELOC when prime was down to 4% with interest only payments. When prime doubles, payments double. EVERY customer was told prime WILL go up, and it did. Prime was low for a few years and people kept taking and taking. Now prime has to drop to try to save people on ARMS and such. When rates bottom out again people will simply come back for more!
It is obviously the banks fault for lending so much money to people who could not and/or would not repay.
If I stand outside waiving my arms and yelling “who wants a loan”, and if I proceed to hand my money to all who accept it, then I am to blame when I don’t get repaid.
It’s that simple. The banks took on the risk when they loaned these people all this money!
I think it is the fault of credit. The ease of buying anything and everything beyond one’s means and replacing savings accounts with credit accounts leads to so many Americans living so close to financial disaster. Our love for material things is there because these things are too easy to obtain. So when the rope is too tight or have so much debt that any added expense can’t be financed or afforded, this is what happens.
Whatever happened to ‘due diligence?’ Banks and mortgage companies lend their depositor’s and stockholder’s money as fiduciaries! Then appraisers make inflated appraisals (‘made as instructed’)and avaricious realtors, while maximizing their commissions, all play into the hands of unscupulous financial ‘mortgage bundlers’ and we have mortgage meltdown. Borrowers, especially the uninformed, who think for some reason the ‘banks’ are on their side, are led like sheep to the shearing. Hell, they’re all guilty!
The borrowers are to blame. I am a broker, and I did not provide anything but A+ paper loans (never liked all the issues with the subprime world) yet still these people I talked to on a daily basis would demand what they couldn’t afford, and they knew it. It was all about keeping up with the jones’. I like to think my position is to give advice, but frankly, thanks to all these articles about refinancing, and refinancing being in the spotlight for so long, everyone on earth thinks they know everything about mortgages and what they can and can’t afford, so they are not listening to us. Borrowers greed is the NUMBER ONE REASON for this mess. Close second though, is whoever profited most by creating the 100% financed interest only ARM. What the hell where they thinking???
This is the Feds fault. Had they managed Interest rates would effectively none of this would have happened. The housing market would have stayed liquid and people could have afforded there mortgage resets. Unfortunately for the US (and the rest of the World) you had an idiot leading the Fed (Bernanke) just when you needed an experienced hand.
Ultimately, it is the homeowner’s fault. Unless they were tricked into thinking they were getting a fixed rate, they should have considered what would happen if the rates went as high as their paperwork would have disclosed.
While Lenders should GUIDE the homeowners by helping them make an informed decision, the final decision is the homeowners’. No one forced them to take out the risky loans or buy homes that were out of thier price range. Everyone took the risk and hoped for the best. There is no FREE LUNCH. Those of us who chose higher fixed rates instead of lower rate riskier ARMs did so because we did not want to take the chance of the rates going up and our payments rising. Everyone made their own choice and should accept their consequences without blaming anyone else.
This is an easy one. Geedy mortgage bankers, greedy investors looking for some fast bucks on mortgage-based derivatives, and imprudent borrowers, who bought more house than they could afford or took out seconds and HELOCs to buy toys are to blame.
And fair Issac, you can bite me. I hope you go under. I monitor my credit reports. One year ago, my score was 722. But when I checked it recently, it had dropped to 702. Nothing about my financial status had changed. I have a standard 15 year fixed-rate mortgage that is seven years into the term and has always been paid on time. I have no credit cards, but only a small line of credit with my bank. I paid cash for my last car. So why’d my score go down? I checked. When I bought my car, I paid for by check. The dealer required that they do a credit check on me before accepting my check (they didn’t want certified funds or and EFT). Of course, my credit was perfect. But, because a car dealership had checked my credit, but did not subsequently did not loan me any money, Fair Issac assumed I had been turned down for credit and lowered my score. Lesson learned: don’t let anyone check your credit if you can avoid it.
Fair Issac is in business to push people to use consumer credit. If you don’t want to do this, they will lower your score. The only way to get it up to a respectable level is to obtain and use credit you don’t need. It’s a scam and Fair Issac is in collusion with credit card companies.
People in this country will always want
a piece of the american dream.And many
have been turned down in the past.Why
did it change so dramatically? Seems
like it had to be the banks,Who else is
in charge? The magnitude of it is probably the greed of developers,and
contractors/realitors alike. Can you
even imagine how there fortunes grew?
The borrower is ultimately responsible for their actions. I sell homes and see people over and over again buying homes they cannot afford. Just because you can obtain financing for something does not mean you can afford it. My job is to sell, the lenders job is to lend, the buyers job should be to purchase within their means.
I agree with what appears to be the majority of postings here. The main fault for the mortgage and housing mess in this country lies squarely with borrowers. There is no question that unscrupulous lenders and rogue real estate agents assisted borrowers on the way to oblivion, but greed and stupidity are a terrible combination, and many borrowers suffered from both.
I witnessed numerous friends and associates ruin their finances by buying too much home or by using their homes as an ATM. Too bad. Now the government has to bail them out. What a disgrace!
I believe borrowers carry more of the blame, but lenders who lent irresponsibly carry some of the blame as well. It’s a person’s moral responsibility to be aware of their debt load and to do a common sense check. If the identical house sells for ten times as much in one part of the country as another, one has to wonder – how long can house value appreciation continue at the rate before something starts to crumble? Lenders may have soothed anxious borrowers’ concerns, which was irresponsible, but it’s up to that borrower to do their research and figure out, hey, maybe this isn’t a smart idea.
It’s the whole “What do you mean, building a city 10 feet below sea level right next to the ocean is a bad idea?” mentality all over again. Just because everyone else is doing it and nothing bad has happened so far doesn’t mean you have a lifetime guarantee that everything is going to be a-ok.
Borrowers! Like any purchase, it is the borrowers ultimate decsion to determine ability to repay. The borrowers should best understand their past, present and future earnings potential and also understand the risks associated with a major purchse. Anyone who has bought a car knows it will be worth less than they paid the moment they drive it off the lot. Homes, Fine art and collectibles are perhaps the only potential appreciable assests, although not guaranteed. Market fluctuations, small print, complex mortgages, etc is not any excuse. Just like the law, ignorance is no excuse!
I think it’s fair to say that, if we are to place blame somewhere, there is enough to pass around. Wall Street, the banks, the GSE’s, Ratings Agencies, the media, the large banks, the federal reserve and finally the consumer. It’s suprising that we allowed a collapse to occur again. Most have forgotten the subprime collapse in Oct 1998. However the recession following Sep. 2001 resulted in a fed policy that eased credit to a point that so many became disillusioned by the possibility of excessive profits. Lending guidelines were excessively relaxed and property values were catipulted to extremes fed by heavy speculation by consumers and everyone in the industry. Again, if we are going to point fingers extend both arms and open your hands to make sure you don’t miss anyone.
I believe it is the homeowners. Nobody forced anyone to buy a house and take on that payment people buy homes with there eyes wide open they now what they are doing. However many things affect there ability to continue to make the payments that they originally took on. Many Americans are not at one job for 30 years etc… they have to constantly change because of business closing down sizing etc.. Also others have medical issues and big bills because they do not have accurate medical insurance. The other thing is people are spoiled and they like their toys and are very materialistic than they used to be so many families overspend. I know this is a long comment but I feel very strong that everybody is blamming everybody else when in reality it is a combination of factors that have led to the situation that we are in. I am speaking from experience. I have had my issues with paying bills after upsizing to a bigger house, but when I made that choice everything was good and than the cars broke down, and we had a 2 year period of medical chaos. Medical benefits cost me close to 850 month plus 3500 out of pocket before it kicks in and 80/20 coverage after that. So this kicked us in the butt, however I would put blame on no one but the situation and our circumstances.
Don’t get me wrong as I am a strong proponent of personal accountability, but mortgage professionals and realtors had a huge hand in positioning mortgages and housing that borrowers couldn’t afford. The phrase, “this is a mortgage with low payments (or interest only payments) to begin with and before the rate resets the house will have appreciated and we refinance into a another ARM or fixed rate mortgage.”
It falls under the “garbage in, garbage out” form of decision making.
All share blame; mortgage lenders not doing proper underwriting, Rating agencies not accurately modeling a sectorwide subprime collapse and giving inflated ratings to MBS, and borrowers trying to live beyond their means. That being said, borrowers should not be bailed out, unfortunately the government has modified the bankruptcy laws to make defaulting on a mortgage an acceptable solution.
The banks are totally at fault. They loan money without ever even meeting their debtor. They ask no questions and never require cosigners. Kids come out of college able to borrow up to $50,000 on credit cards alone, with no questions asked. When i graduated law school i couldnt get a credit card with more than $l,000 limit and had perfect credit and money in a passbook savings account. today, instead of being encouraged to save for something we desire, we are taught to simply borrow what we should have saved and spread it out over more time. The banks are the party with control and until the force younger borrowers to become more responsible, this credit mess will continue to plague our total economy and apparently the ecnomies of the rest of the world, who for greed or whatever reasons were quick to scoop up this junk mortgage paper. Now of course, those of us who have been responsible, who have savings, are forced to pay for the indiscriminate behavior of these bankers, by another round of federal rate cuts, what a lesson for borrowers, hah what a joke the federal reserve is.
Of course it’s the creditors’ fault. People have no idea how to manage their finances and have no idea as to what they can really afford.
Sure, the lenders, mortgage brokers, appraisers, etc. may have done morally questionable things to help the consumer get into un-realistic loans. However, in the end, the largest share of the blame must be placed on the American consumer. The American consumer wants everything and wants it right now. To hell with the consequences and who cares if I can’t afford it?! People don’t understand that continually using your home as an ATM means that you will never own your home!! I’m done ranting…for now…
Ultimately, the responsibility lies with those taking on the risk, i.e. the borrowers. We know people and have heard many accounts of people who bought housing without intent to occupy or with intent to occupy for less than a year in order to profit off of a quick sale. We should not reinforce “get-rich-quick” mentalities and I am glad to see the financial industry returning to a more responsible state of lending practices.
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I think the blame should be focused more on the Gramm-Bliley Act of 1999 – signed into law by 90% Democratic Votes and a Democratic President Clinton. Check it out. This 1999 Law paved the way for this banking crises that we face.