Ain't Gonna Happen

Experience is the best teacher. Ralph Peters' experience as a child with the threat of foreclosure allows him a compassionate window into what pain is created when you lose a home.  And today's unscrupulous lending practices cause him to suggest this:

So here's my simple proposal: Pass a law that makes the lending officer who approves a mortgage personally liable for a $ 10,000 fine if the borrower defaults within five years. In plain English, if you set folks up to fail, you pay.

Surely in some respects, not the worst idea in the world.  Some lenders do "set up" borrowers into situations where only a true moron would not appreciate that the borrower had good odds to go into default down the road.  It would be nice if lenders had some moral responsibility to caution their clients away from such scenarios.

Yet, certainly in some foreclosure stuations, The End comes not because of poor lending practices, but because of irresponsibility on the part of the borrower.  Many possibilities of this, all with the bottom line that the borrower knowingly put himself at higher risk than he should have done.

As a Realtor, I feel a tremendous responsibility to give my clients good and accurate advice.  I do my best to caution them into not taking actions that could cause them harm.

Yet ultimately, it is the client's life and the client's decision to make.

Still.  We all know that some professionals care only about that fat paycheck, and nothing more.  If not a crime in our judicial system, it surely is one in the moral scheme of things.

Comments

[Margaret]

Peg, I read this same piece and had a similar reaction. I deplore the ethics of these people. I know some of these people are just sharks who could care less about the ability of the signers to pay. The alternative, however is not lending money to poor people, which ensures that they will never get ahead. It may also be an actionable offense if the poor people in question are a disadvantaged minority group. I believe that eventually the market gets rid of or sidelines unethical actors in these types of situations. Morgage brokers who have high default rates are scrutinized more closely by lending banks and the bad mortgage people themselves are closing up shop in a lot of states. That doesn't mean that the personal pain for a lot of people isn't real but in the US we have no debtors' prison. People do start over. It ain't easy but hopefully most people can learn from their mistakes. Peters learned from his Dad's mistakes.

[Grag]

Perhaps if there were more stringent laws and rules for this industry, and those that worked in it, things like this would not be occurring. Just about every profession has rules, and laws the govern the conduct of those that work in it. Are there no rules or code of conduct in this profession, and if not should there not be?

It has just been reported that the company America Home Mortgage is fighting for it's life to survive. For those who do not know, America Home Mortgage was one of the largest US Mortgage companies. If America Mortgage Company seeks bankruptcy protection, American Home would join New Century Financial Corporation and several other home lenders who have sought protection from creditors this year. The primary cause for the trouble of these companies has been the fact that they have all catered to sub-prime borrowers, rather than borrowers considered better credit risks. The untold ripple effects of the foreclosures, and company finance troubles are hard to completely gauge, but I assure you the picture is not a pretty one. I find this amusing because we have been constantly bombarded with Republicans and the Administration bellowing on how robust this economy is going. For those who want to read about this, follow the link below.

http://money.cnn.com/2007/07/31/news/companies/american_home.reut/index.htm?postversion=2007073115

[JFP]

Rather than new rules and regulations, I would rather see schools teach a class on home-buying. Lots of first-time home-buyers don't seem to know what they are getting themselves into.

Such a class could also teach responsible use of credit cards, how to rent an apartment, making investments, planning for retirement, etc.

[Peg]

JFP - I am with you! Much more practicality needed in our educational process.

Kids need to learn what to do and how to be responsible, self-reliant adults!

[wayne]

I hope that you realize that you have now classified some of these home buyers/borrowers as "true morons" who cannot "appreciate" that they have "good odds to go into default down the road". This is not a defense of predatory lenders, but a recognition that blaming someone else ('they're bad people because they let me hurt myself') is far too prevalent in our current society.

I had neighbors who, in a previous housing cycle (and these things are cyclical) had maxed out their home equity to pay off their huge credit card debt, only to max out their credit cards once again, and ended up having to 'fire sale' the house (they werrre also sure that they were not responsible for their predicament). Why should the rest of us pay for that type of irresponsibility, either directly through government bailouts (such as Clinton has now proposed) or through higher mortgage/settlement costs (as most of the other proposals will lead to)?