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“Americans For Fairness in Lending” Gets on My Nerves!
By JLP | September 20, 2007
Yesterday I received an email from a PR person for Americans for Fairness in Lending with an attached copy of their Reporter’s Guide (PDF). Although I understand what the AFFIL is trying to do, their message comes across as:
“You Americans are SO STUPID that we have to have more legislation to save you from yourselves!”
For example, check out this paragraph from their guide (emphasis mine):
Mortgage borrowing is a complicated process, and consumers need and deserve to be protected. Just as supermarkets are prohibited from selling poisonous food, borrowers should be protected from toxic mortgages that have a one-in-five chance of choking them. Borrowers should be able to trust that lenders will not sell them loans they cannot afford, and that our government will protect them against deceptive and unfair lending practices. Neither assumption is currently accurate. This lack of lender responsibility and government oversight needs to change.
This is so ludicrous that I don’t even know what to say! Can’t borrowers figure out for themselves what they can and cannot afford? Not ONCE does their Reporter’s Guide mention personal responsibility - NOT ONCE! This can only leave us with the impression that this crisis is 100% on the shoulders of the lenders.
Now, before you misunderstand me, I’m am not supporting the lenders. I know that they created lots of crappy products that should have NEVER been used in the first place. And yes, there were brokers who did underhanded things. For that, I do think changes need to be made. I would just like to see less coddling of the borrowers, who were just as much to blame for this crisis as the lenders were.
Anyway, I urge to read their Reporter’s Guide. What do you like/dislike about this guide?
Topics: Housing Market, Mortgages |
September 20th, 2007 at 10:50 am
I agree with you in that borrowers do bear the responsibility of knowing what they can and cannot afford BUT also there has been a covert change in the lenders way of approving loans. It use to be that the banks would flat out tell you NO you can’t afford that. But it’s no longer that way. How many times have we heard these words from friends/family… ” wow, the bank approved me for XX amount! They must think I can afford it otherwise why would they have approved me for that amount??! It’s very empowering. If you’re not prepared to tell yourself NO ( and who likes to do that?) then the borrower sells him/herself on the loan. I don’t think it’s one sides fault over the other, both need to be held accountable. It’s easier to have legislature to govern the banks than trying to make individuals be more self aware.
September 20th, 2007 at 11:15 am
I’m with you, JLP. Should we make laws stating that obese people can’t go into McDonalds? Should there be police on the street giving tickets to people who walk around outside without a coat when it is below 40 degrees? Should you not be allowed to have cable or satellite TV when your income is below a certain level?
One of the things that makes America great is freedom, and little by little it is being taken away. People make stupid mistakes, and some are more significant than others, and buying more home than you can afford is just a larger dollar amount mistake.
Banks are private companies that can for the most part set their own lending standards. The banks got greedy and wanted to take advantage of the money being left on the table in the subprime market, so they loosened lending standards to tap into it. They are subprime for a reason, they have a higher risk of defaulting.
Well guess what, they willingly took on that risk, and now crying foul. If you’re going to impose strict regulations on borrowing to protect the consumers, you’ll have to impose regulations on people who invest in the market. Stocks can go down, and if a consumer isn’t intelligent enough to make the right choice, they shouldn’t be allowed to purchase that stock or mutual fund, yet most people can throw $100,000 in the market today and lose it all in a few days, nobody is stopping people from being ignorant with investing their money.
Sure, the illegal lending and shady loans should be dealt with, but it is getting out of hand regarding how far people are proposing to go with the issue.
September 20th, 2007 at 11:19 am
@Laura
Of course both sides need to be accountable. The bank that has an easy money policy deserves to lose their money, but the person who borrows the money knows what they can afford because they have either been renting or are paying on a mortgage already. If they are having problems with their finances now, what would make them think it would improve by paying more? Just because a bank sends you a new credit card, it isn’t an excuse to charge to the hilt, if you are only paying the minimum on your current cards!
Bottom line… people don’t want to be criticized or held accountable for their choices, yet they expect others to tolerate and accept them anyway.
September 20th, 2007 at 11:28 am
What I think they should be pushing for is better education in schools about how mortgages and other PF issues work. I mean, who actually learned about this? I had to take a college class and then learn on my own.
Many people aren’t stupid, just ignorant and trusting. Perhaps also too hopeful.
I do support outlawing payday loaning. There’s just no time when that kind of deal is appropriate. People with bad credit might be able to do just fine with a subprime mortgage if they have a good understanding of finance, saving, interest, all that.
I think the most useful legislation the guide proposes is that the lenders provide clear explanations (”meaningful disclosure”) of how the loan will work. This way they won’t overwhelm people who haven’t studied all the industry terms.
It should be that hard to do. I could write a simplified and clear version of my company’s leases for the tenants. I expect people in other industries can do this as well.
September 20th, 2007 at 11:51 am
I think that consumers would be far better off if instead of lobbying for legislation, they were to offer paying the attorney fees for prospective homebuyers. I’m pretty sure that would solve most of the problems at far lower cost.
Furthermore, let’s leave aside the whole responsibility issue for the moment. I have a bigger problem with how they view ‘unaffordable’ loans. These loans exist because they actually do make sense in certain situations. While I’m betting that most readers here are, like me, pretty conservative with their money, it’s up to the borrowers and lenders to decide if those situations apply.
The whole notion of affordability is dependant on context. Take the case of a recent graduate with little current assets, but a pretty well-defined, upward career trajectory. If he’s willing to take the risk, a 3-year ARM could be a great idea, even if, on paper, the property is way beyond my means. (Again - I personally wouldn’t do something like this, but I also wouldn’t necessarily fault anyone willing to take this chance).
If I’m buying an investment property, and intend to flip within 12 months, then an interest-only loan makes perfect sense. It minimizes the sunk costs and increases the amount available to spend on renovating the property, in exchange for a higher risk premium if you have trouble unloading the property.
September 20th, 2007 at 2:46 pm
There is fault on both sides. I am reminded of the credit card problem in America where people borrow too much (hyperbolic discounting) and end up getting killed by the interest rates when they don’t make full payments.
September 20th, 2007 at 4:27 pm
I agree with Mrs. Micah, I have an undergraduate degree in Economics and I am terrified of the day when I will have to arrange for my mortgage. One only makes a deal of this magnitude a couple times in their life. How does one become comfortable with the contract they are signing, I have nothing to compare it to. I hope that the information out there will prepare me to recognize a shady deal if I see one, but I will probably get ulcers pouring through my contract to spot the potential threat that could ruin my credit.
I still remember figuring out how much car I could afford as a student, taking into account taxes, documentation fees, and insurance. Then sitting down with the smooth talking manager who attempts to add all the other things into the contract. Tough choices to make in 15 minutes in that back room.
There are always opportunities to make bad choices in these contracts (scotch guard anyone?), hurting the unwary consumer. I expect it to be very easy to start out trying to buy the house I can afford and walk out with the one I can’t. I guess I should thank the Government for the easy to understand block of info at the end of every credit card offer I get. Otherwise I would need a Harvard Law degree to ascertain what kind of deal was being offered. I just pray to science there is one at the end of my mortgage contract.
September 20th, 2007 at 10:46 pm
There is plenty of fault to go around in the mess that is the mortgage market right now, but I do agree with your thoughts. It seems as if they want to be able to get into the loan whether they are really able to afford it or not, and subsequently be bailed out when they can’t afford it. The consumer has to take more responsibility than that.
September 21st, 2007 at 10:40 am
I agree with you JLP, I can’t understand why people would want more regulation. Assuming that the lender clearly states the terms, people should be able to make up there own mind whether it is a good or bad idea for their situation.
The problem is that people want freedom, until they make a bad choice and have to face the consequences. Or course, when such a large number of people made such bad choices, it does tend to have farther reaching consequences… (Maybe you should have to pass a test to take out a mortgage)
September 21st, 2007 at 6:48 pm
I’m not a fan of coddling, but maybe a happy medium would be if lenders had to have a easy-to-read, standard format on every mortgage that displays the “quick, vital stats”–in the same way that they have standardized nutrition labels.
For example:
Interest rate: Fixed or variable
Initial Rate:
Term of Initial Rate:
Maximum Interest rate:
Length of Term, etc.
Just a thought.