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QotD: Subprime Mortgage Mess - Who’s to Blame?
By JLP | March 22, 2007
I’ll get right to the question:
My opinion:
Unless lenders were lying to the borrowers, the responsibility ultimately lies with those people who signed on the dotted line (unless the lenders were lying). Lack of understanding really isn’t an excuse. I think it’s funny that we all saw this coming and now that a crisis is at hand congress decides to bring in the lenders to grill them about what went wrong.
UPDATE: Here’s the part of the article ($) that was in today’s Wall Street Journal that SteveK (see comments below) is referring to:
Federal regulators, meanwhile, have tended to focus more on the solvency of the institutions they oversee and less on individual consumer complaints. The case of Dorothy Smith, a 67-year-old from East St. Louis, Ill., illustrates how hard it was for individuals to get regulators’ help. In 2001, Ms. Smith, living on $540 a month in government benefits, was encouraged by a contractor to apply for a loan to finance home repairs. After two loan applications were rejected, a broker submitted a third showing that she had monthly income of $1,499 and was employed at a senior-citizens home though she had actually retired 10 years before, she said. The $36,000 mortgage that First Union National Bank (now part of Wachovia Corp.) approved for her required a monthly payment of $360.33 for 15 years followed by a “balloon” payment — when she would be over 80 — of $30,981.48. Fees and closing costs came to $3,431.
When the contractor left work unfinished, Ms. Smith sought help from Land of Lincoln Legal Assistance Foundation, which complained to Illinois bank regulators. The legal aid lawyers say the loan required unreasonably high payments given Ms. Smith’s income and a balloon payment when she would be over 80 years old. The state forwarded her complaint to the OCC, First Union’s regulator, which responded in 2002: “We cannot intercede in a private party situation regarding the interpretation or enforcement of her contract….The OCC can provide no further assistance.”
Ms. Smith sued First Union in a St. Clair County, Ill., court, for, among other things, extending credit beyond her ability to pay. Last year, the bank settled without admitting any violations, forgiving her remaining loan balance and paying her $14,000. “It is extremely rare, for individual matters, to get relief from either the state or the federal regulators,” says Diane Thompson, her attorney. A Wachovia spokeswoman declined to comment on the settlement but noted the bank has very little subprime business.
Topics: Housing Market, Question of the Day |