In all the hoo-hah surrounding the "Wall Street reform" bill that is gradually dropping through the pachinko machine of Capitol Hill, I keep hearing the term "predatory lending practices" which is, from what I can gather, where mortgage bankers would lie in wait in the bushes, and then leap out unawares on poor innocent folk, shoving hundreds of thousands of dollars into their pockets, and then forcing them at gunpoint to buy homes they didn't want.
Well, they should cut that out right now.
When the bubble first popped there was all this talk of "Predatory Lenders" that unlike the kind that drafted up legit mortgages and the saps didn't read the terms, and the bank didn't tell them to fuck off because Jesse Jackson and Al Sharpton would sick rookie lawyers like this Barack Obama fella on them to sue them for discrimination against poor people applying for big loans that just happened to be a certain color.
ReplyDeleteIt seems that I have yet to read about an actual bank that was honest-to-god dishonest about the terms of the agreement.
Maybe its just that banks refuse to acknowledge that the terms of a loan aren't "living documents"....
"Jenkins, look! A dirty NASCAR hat, hand me my beloeved NINA, I'm going to bag him and put in a French Colonial with 3 baths, a carriage house and a view of the golf course."
ReplyDeleteLet's see Congress creates a problem and then punishes those attempting to implement Congressional mandates. The solution? Even more goverment.
Thanks, Mr. Obvious, you're a real lifesaver.
Shootin' Buddy
"gradually dropping through the pachinko machine of Capitol Hill"
ReplyDeleteBest description of the legislative process since "sausage-making".
I'm glad I wasn't the only one struck by this nonsense term.
ReplyDeleteWasn't the purpose of Freddie and Fannie to help people who wouldn't otherwise get loans buy homes? "Predatory lending" was invented by Congress.
Loan officers are paid to write loans. They will eagerly lend money to any person, dog, fish, or fencepost they can convince their superiors meet the criteria.
ReplyDeleteBanks get free money from us (the Federal Reserve System) based on how much money they lend. NOT on how much is paid back!
A $500,000 house purchase loan to random street bum at 9% is a score to the loan officer and the bank.
A $10,000 loan to me at 4%, with my stable credit and good income, is almost an expense.
So yes, the incentives do favour "predatory", if not forced, lending.
Only conscience keeps bankers honest. Laws and regulations just keep them busy.
Like most of us, really.
True, but the fish or the fencepost has to actually ask for the money. The only time it doesn't take two to tango is when one of the dance partners is the American voter. We're blameless.
ReplyDeleteJust another ploy - or play - out of Alinsky's book, demonize your opponents. It's getting old.
ReplyDeleteThe Alinsky tactics may be getting old indeed, but we're gonna see stuff out of that playbook as long as the Machine stays in power, both because it has worked for them and because they don't seem to know anything else
ReplyDelete"Free Birdseed"
ReplyDeleteNo, no, don't worry about anvils.
Are you smarter than a roadrunner?
Apparently not.
But even coyotes escape the pancake treatment this time...who gets squashed instead?
Why, that would be all you boys and girls watching the hijinks at home...
AT
AT,
ReplyDeleteI'm always a little shocked when I find out that someone joined one of those record or book clubs, or went to Vegas or bought Lotto tickets with their money, so maybe my viewpoint is a little skewed.
At one point during the lending bubble, I was getting 2 or 3 unsolicited calls per night from mortgage brokers trying to get me to refinance. One of them told me that with such a small house, that I would attract the attention of the IRS, who would audit me to find out where the rest of my money was going.
ReplyDelete"Are you being blackmailed? Are you addicted to drugs or something? You'd have to be a criminal or insane to not leap at this great opportunity to change to an interest-only ARM."
Predatory is approximately the right word for that behavior. They harass the herd, and pick off the slow and weak.
Then they turned on the do-not-call list, and all has been well since then.
Predatory Lender: one who expects to be paid back.
ReplyDeletePredatory lenders expect the borrowers to pay the loan even if the situation changes or does not go according to the plan of the borrower. For example: If the borrower does NOT win the lottery, inherit millions from a lost uncle, get promoted from salesman to Vice President of Sales, or get to sell the house for nine times what he/she bought it for, the predatory lender STILL expects to be paid back.
Most victims of predatory lenders should become institutionalized wards of the state; they cannot manage their own affairs.
Bankers (except in turn-of-the-last-century melodramas) are not in the business of making loans just so they can foreclose on the property involved later. ("Marry me, and I'll tear up the mortgage!")
ReplyDeleteThere remains the incentive problem, as Staghounds pointed out. And there's also a knowledge problem for the average homebuyer (who, if not a sheep among wolves, is maybe a dog among coyotes). I ranted about that a while back.
But all this talk of "predatory lending" is just a smokescreen to distract from the real, congressionally mandated lending scam.
Actually, I used to blame the borrower as well, until I looked beyond the Republican finger pointing and actually did some research. This is what I found:
ReplyDelete1 Bank industry lobbies for and actually writes Gramm Leach Bliley Act, allowing the securitization of martgages.
2 Banks for corporation named MERS to track mortgage assignments, making mortgage assignments no longer part of public record, so they could remain unmonitored.
3 Bank lends money to person they know can't afford it, but that is OK because the bank plans to sell it before the first payment is even due, meaning that the bank will not be on the hook if it defaults, thus removing all incentive to make responsible loans.
4 To make this loan, banks subvert appraisers to inflate home values so loans can be made.
5 Sub prime Loans are securitized and packaged as Wall Street securities. Ratings agencies (now owned by banks, thanks to Gramm Leach Bliley) rate these securities as AAA, even though they are based on subprime mortgages.
6 When these subprime mortgages inevitably fail, they drag the mortgage insurance, retirement funds, and banking industry with it. This causes the rest of the economy to tank.
7 The banks then get large amounts of government cash to fix the problem THEY created. Not only do I pay for this in the falling value of my home, and the falling value of my retirement savings through valueless stock and inflation, but my taxes bail them out. On top of that the bankers who pulled this off get billions in free cash for milking the American public.
Stop drinking the Republican Kool-aid- the borrowers are not 100% to blame. Since the banks were in a better position to know better, and the politicians took bribes, I blame the banks 50%, the government 35%, and the borrowers 15%.
Gramm Leach Bliley Act
Foreclosure mess
When all this crap came down, we had purchased a house about a year before.
ReplyDeleteI'd seen these idiot loans like the option ARMs; I thought those were the dumbest idea I'd yet heard. Yes, you improve cash flow NOW, but you're just kicking the debt can down the road. I don't run my personal finances like the fed.gov likes to do, so that was out.
When we did apply for a mortgage, I read over EVERY SINGLE piece of paper the bank sent me. Twice, even. Slowly. I wanted to grok every single word. I knew EXACTLY what we were signing. That paperwork is required for every mortgage- if people had no idea what might happen, it wasn't because the information wasn't put in front of them. It was because they were too lazy, too stupid, or both, to actually read the information. I even saw people on the news saying "Who reads all that?" Well, I do. And we still have our house and aren't about to lose it like those morons.
Did the lenders play fast and loose? Sure. But they couldn't have done that without the full and complete cooperation of the borrowers.
As much as people lambast corporate greed, these loans were made to normal people who signed the documents. There was at least as much greed on Main Street as there was on Wall Street. Heck, Wall Street had less stupidity, since their intention was to pass that risk on to some other moron who didn't read what they bought.
All this started with our neighbors. Period. All the regulations they're discussion, all the crap about the banks, all that ignores that people willingly took on these loans.
You can't save stupid people from themselves.
Divemedic,
ReplyDelete"Actually, I used to blame the borrower as well, until I looked beyond the Republican finger pointing and actually did some research."
Since when is saying "it takes two to tango" considered "Republican Kool Aid"?
Tam, I was talking to the "Anonymous" who said that a "Predatory Lender" was a lender who expected to be paid back.
ReplyDeleteIf you read the links at the end of my comments, you will see that Govt officials who helped the banks set the stage for this mess got millions. Clinton's Treasury Secretary made $50 million on the deal.
In this case, it took three to tango, predatory lenders, corrupt politicians, and borrowers who wanted to live like rock stars.
Except for laying the whole sordid mess on the 'pubs, Divemedic has it about right.
ReplyDeleteJoin a book club, blow your milk money on the lotto, go all-in at the poker table, buy you up some googoo shares, or sign a note to buy a house, and it's "caveat emptor, baby". Usually.
But for any of the above, or just about anything else...when the fix is in, it's "all bets are off, baby".
AT
Try to tell people that if they can't afford their home on a standard 15-year mortgage that maybe they can't afford their home.
ReplyDeletePeople lined up for these loans because they didn't care about anything except that three-car garage, the jacuzzi tub in the master suite and the granite in the kitchen.
Little things like "can you afford it?" or "do you need it?" or even "what about the kids' college?" or even worse "retirement?" never entered their consciousness.
Of course even today you can't convince Americans that debt is not their friend. Make car payments to yourself, and pay cash. You won't pay 50,000 for that $30,000 car.
Then you get the discussion from a couple days back where people making 150K complain they can't get ahead. (big screen TV. dine out. cable/satellite for big screen. vacation. jacuzzi tub. granite counters. etc.)
Divemedic
ReplyDelete"3 Bank lends money to person they know can't afford it, but that is OK because the bank plans to sell it before the first payment is even due, meaning that the bank will not be on the hook if it defaults, thus removing all incentive to make responsible loans."
Back when Tip O'Neil was tending bar in Congress, banks used to take money in form of passbook savings accounts and certificates of deposit, and loaned money to home-buyers. There was a little clause in the mortgage doc, called a prepayment penalty. That means you didn't refinance every time the rates moved a billionth of a percent.
But Congress decided that was unfair, and at some point they outlawed that penalty.
So bankers were on the hook. Those CDs weren't going down (expenses) but were fixed. But their mortgage income was falling.
So they got out of the business of lending money (and collecting payments) and got into the business of writing loans.
The rest as they say is history.
But it you make impossible for a business to make money with a certain process, you really shouldn't be surprised when the businesses change the process.
For an example of a place where this didn't happen, see Australia. They didn't get a real-estate bubble, because they kept the prepayment penalty and people didn't treat their homes like ATMs. (i.e. refinance every other month.) Not that they haven't gotten hit by financial melt-downs.
Are Predatory Lenders the ones that use Assault Weapons to force people to take loans?
ReplyDeleteWV: ounrearm
appropos, no?
Google a company called "Mortgage Electronic Registration Systems" or MERS, and see what happened when Gramm Leach Bliley was passed- mortgages went from being publicly recorded in a transparent, public records process, to being a secretly tracked paper trail that MERS refuses to release to the public.
ReplyDeleteMERS was founded by Countrywide and BoA, and is the mortgagee of record for 55 million mortgages, yet doesn't loan money. The way it works is that the bank lends the money, and names MERS as the mortgagee. This allows banks to hide the transfers and true ownership of the mortgage.
I think the "predatory" lenders are those that share TV ad space with the ambulance chasing lawyers. The ones that entice folks with "you can't be turned down!"
ReplyDeleteThe others are those that, under Carter/Clinton's CRA, are *required* to write a certain portion of their loans to folks that cannot afford them.
Congress hasn't addressed either of those driving conditions, other than to take campaign funds from Freddie Mac and Fannie Mae, and hide their debts (which balloon the national debt). Oh, and Congress has forbidden anyone from auditing and correcting shoddy practices and illegal book keeping since President Bush started trying to clean them up.
Of course people should be responsible for what they sign. You should read the fine print, on everything. That being said, how many here read the EULA for every program they buy and install? The real question is not being asked here, because most everyone here is actually pretty smart. When you buy a house there's a LOT of paperwork. A lot of legalese. I know, I have taken the full on graduate course on real estate law. At some point the vast majority of people have to rely on those selling them the home or providing the loan to deal square. What if doctor's provided prescriptions in a manner similar to recent real estate? Yeah people are supposed to read the label, but if my MD says take 2 every night and you will be OK, don't I do what he says? I am supposed to be able to trust him. If a doctor gives me medicine that will make me very sick after following his directions for the sole purpose of making $$, then some might consider that "Predatory".
ReplyDeleteIf we will let lending institutions that make bad loans fail, then they won't do that anymore. If we'll let people who sign up for bad loans fail, then they won't do that anymore.
ReplyDeleteWhy are we so averse to letting entities fail?
How can we judge the quality of things, when we rescue the failures? It's institutionalized retro-Darwinism.
Sorry, but that image brought a flashback to mind:
ReplyDeletehttp://www.sinfest.net/archive_page.php?comicID=3152
Tat got there first. :D