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Christopher Dodd’s Subprime Answer
By JLP | September 11, 2007
The opening paragraph of this article from last week says it all:
Senate Banking Committee Chairman Christopher J. Dodd today proposed a sweeping set of changes aimed at helping high-risk borrowers deal with predatory lenders.
So it seems the entire subprime mortgage mess was due to predatory lenders. The borrowers had no responsibilty in this matter.
I’m not going to say that no funny business went on during the subprime heyday. I’m sure there were lots of brokers doing shady things to get borrowers into loans that paid better commissions. However, I have a hard time believing that borrowers were mislead to the point that they couldn’t make a sound judgement as to whether or not they could afford their mortgages. I have a feeling that most people were looking through rose-colored glasses and counting on the price of their house continuing to appreciate at a solid pace. When the mortgage reset, they could simply refinance and get another cheap loan. Its amazing what some people will sign up for when they want something bad enough.
I’m not saying that some changes don’t need to be made. They do. Brokers’ butts need to be on the line when they act unethically. The commissions on subprime loans need to be the same as commissions on other types of loans so that there’s no incentive to stear people to one loan over another. I have heard or read stories of people who qualified for better loans being steered into subprime loans because the broker earned more commissions. That’s just wrong and the broker should go to jail for that kind of behavior.
The bottom line: borrowers need to educate themselves so that they can spot when someone is trying to take advantgage of them. Notice that there’s NOTHING in Dodd’s “plan” about educating borrowers. I say MAKE first-time homebuyers take a mortgage class before they can take out a mortgage. It’s a little radical, but I bet it would help.
Remember, Dodd’s just a politician running for president. Voters don’t want to hear about personal responsibility.
Topics: Business News, Credit, Housing Market, Mortgages | 4 Comments »
September 11th, 2007 at 11:41 am
I completely agree with your idea of taking a mortgage class for the first time home buyers. I don’t have a house, but I will be more than willing to take a class to see what the real costs of owning a house, what other expenses one will have other than the monthly mortgage before jumping into it.
Yes, buyers need to get educated on this subject matter. At the same time Lenders who indulge in unethical practices should be sent to jail. End of story.
RV
September 11th, 2007 at 2:05 pm
I don’t think people need to take a mortgage class, but rather a mandatory legal waiver included that shows the costs of owning a house under x mortgage. It would include things like pay-per-month, pay-per-year, how long it would take to pay off, any hidden fees, different interest rates to show refinancing, and various statistics that would help the buyer get a general picture of the cost. That way, the buyer would be educated, and the lender would be legally bound by ethical practices.
September 11th, 2007 at 9:28 pm
If I am a mortgage broker I work for the borrower to get the borrower the best deal–that is what a broker is hired to do. So a broker can put you in a house with teaser rates and lie to you about affordability and somehow it is the buyers fault-the broker is the expert. The mortgage broker is supposed to work for the borrower but as we found out they don’t–don’t lay this at the feet of unsophisticated borrowers–they do bear some responsibility but your article is slanted too much in favor of the mortgage brokers.
August 1st, 2008 at 10:37 am
I agree that a class for first time buyers would be a very good thing. Most people don’t understand all the fees and charges involved with getting a mortgage, let alone purchasing their first house. I also agree that people involved for the worse in the subprime mortgage market really should have had the common sense to ask themselves if they could actually afford to make their repayments.