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This Guy Sounds Exactly Like Me!
By JLP | October 6, 2008
The Letters to the Editor section in today’s Wall Street Journal contained the following response to Thomas Frank’s piece of drivel (free) from last Wednesday:
Ultimately, the responsibility is to the borrower, not everyone else. I was amazed in 2006 when my mortgage broker informed me of the amount of money I qualified for when purchasing my first home. Just because I was “qualified” for that amount did not mean I could “afford” a home in that price range. I settled on a modest home in a modest community — and peace of mind. People who bite off more than they can chew often choke.
Michael H. Flanary
Fairfield, Conn.
EXACTLY! I couldn’t have said it any better myself (probably because I’ve already said it in the past!).
I urge you to read Thomas Frank’s opinion piece. It drives me nuts when people call so many adults “victims” when they were the ones who signed all those forms at their mortgage loan’s origination. When a borrower signs that contract, they are obligated—it doesn’t matter if they read and understood the contract or not. They made a choice when they signed the forms.
Yes, Wall Street did its part in helping create this mess. I’m not denying that. Wall Street created demand for subprime loans and mortgage brokers bit. HOWEVER, it was still the borrowers who had the final say in the matter. Had borrowers practiced prudence, no mess would have been made.
Now, if the borrower signed the forms while the mortgage broker was holding a gun to their head, then yeah, they could be considered a victim. I’m also sure some fraud took place in which the mortgage broker falsified documents or outright lied to the borrower. These borrowers could also be considered victims.
That said, painting all borrowers who took out mortgages that they couldn’t afford as victims, is just crazy. It’s also a sad statement of what America has become—a nation of whiney victims.
The REAL victims in this mess are those of us who did the right thing and borrowed what we could afford to borrow and purchased homes we could afford. Now we are being forced to subsidize and feel sorry for those who made poor decisions.
Topics: Housing Market | 19 Comments »
October 6th, 2008 at 10:50 am
I couldn’t have said it better. It surprised me that people were whining when they were getting houses at half a million on a $60,000 salary. Craziness!
Common sense, ain’t so common, eh?
October 6th, 2008 at 10:52 am
This kind of thing always goes back to the “something for nothing” idea or “I deserve it. These people obviously “deserved” what they got, just too bad they’re not having to pay the price.
October 6th, 2008 at 11:18 am
What drives me nuts is how many adults behave like children! They become infected with thinking like (and becoming) victims, and then expect the state (tax payers) to take care of them. It’s a sad state of affairs on many levels of our society, this just happens to be the latest. I hope people wake up and change their thinking and behavior or this will just be a little taste of what’s to come.
Whatever happened to personal responsibility?
October 6th, 2008 at 11:46 am
I too, was approved for a loan I could not really afford. Obviously I knew better, and did not buy, but was totally floored that my realtor and mortgage company were good with it!! THEY weren’t paying for it, now were they? I was fortunate in that I did not have to move or buy at all, I just thought it would be a good investment. I agree with BOTH of you 100%.
October 6th, 2008 at 11:47 am
I can relate to what this person experienced as well. When we were in the market for a house about 4 years ago, I couldn’t believe what they told us we were qualified for. At the time, we only had one income, yet they said we could afford more than double what I knew we could afford. It actually blew my mind.
And of course, my wife fell into the trap and she was thinking oh my god, we can get our dream house! While I’m looking at the numbers wondering how the bank can put us in a mortgage payment that would end up being 50% of our income.
Yes, shame on the bank for breaking traditional lending standards. And shame on Wall St. for fueling this behavior. But it all comes down to the “if it sounds too good to be true…” thing.
October 6th, 2008 at 12:06 pm
I too was amazed at the numbers that were given to me 5 years ago. Now five years later, I am married and we are making more money and have no debts. I looked curiously again last week at mortgages and I only qualified for half the amount that I was offered five years ago. It is at least now comforting that banks now are being more selective and prudent in how much and who they give mortgages too.
October 6th, 2008 at 4:45 pm
I so agree! The problem is that common sense is not “sexy” enough for the media.
I was offered a ridiculous loan in 2006, it was for $450k, I made $50k at the time. I asked how I would ever qualify for that and the broker told me, “don’t worry about it, we’ll find a way”.
I’ve since kept saving everything I could and just bought a foreclosure for $250k with 20% down. I have no other debt and I’m comfortable with the mortgage amount.
October 6th, 2008 at 6:35 pm
There is plenty of blame to go around. Borrowers bit off more than they could chew, lenders pushed shakey loans out of greed with some mortgage companies engaging in predatory lending practices and the regulatory agencies failed to do anything to reign in the abuses.
Jim
October 6th, 2008 at 7:07 pm
This mess is only a mess because of the out-of-control leveraging of those mortgages, and that blame rests solely on the financial companies who got greedy. If there had been no leveraging or credit default swaps, the defaults would be a blip as everyone had originally thought they would be. Getting angry at the victimization of the borrowers is a distraction from the bigger picture. What might be common sense to one person, may not be to another. You can’t judge other people from your personal perspective. The fact is, a lot of people do not know better due to their environment and rely on professionals or the tv to tell them what’s best, and this goes for a lot of things, not just housing. Not to mention, I’ve been reading about people going into foreclosure not because they can’t afford it, but because it makes more financial sense to get a black mark on their credit history and buy in at the new lower prices.
October 6th, 2008 at 9:49 pm
I’m at the point of thinking that people should be required to take a basic “homebuying 101″ class before purchasing a home. Obviously, the lenders can’t be trusted to guide people to sensible purchases, and evidently people can’t be trusted to get unbiased information before making the biggest purchase of their lives. I’m appalled that so many people made such a big move on blind faith.
October 6th, 2008 at 10:05 pm
I have to agree with Christine. The majority of the blame should fall squarely on the financial companies that were taking these risky loans and putting them into the credit default swap system.
It all started out with predatory lending practices too. Many of these homeowners with sub prime mortgages were eligible for prime rate mortgages (source below). When applying for the mortgages, the banks presented the sub prime mortgage offer often not even informing the customer of their prime rate eligibility. The banks made more money selling mortgages at higher interest rates assuming the customers would be “fine” when the value of their houses were to rise.
The banks got greedy, and to patch up these risky loans that they willingly gave out as sound ‘insured’ investments was what caused this entire market meltdown to begin with where it otherwise could have been avoided.
Source of information on mortgage eligibility:
http://72.14.205.104/search?q=cache:F_S9MnWz7NsJ:jec.senate.gov/Documents/Releases/12.19.07brookingsspeechrelease.pdf+Charles+Schumer+eligible+subprime+mortgage&hl=en&ct=clnk&cd=1&gl=ca&client=firefox-a
October 7th, 2008 at 8:01 am
I think some of your readers are a bit confused by blaming everything on business. Congress and Jimmy Carter enacted the CRA or Community Reinvestment Act, and modified it later to ALLOW lower income people to purchase a home. The democrats wanted everyone who wanted a home to buy one, regardless of whether they could afford it. Then Fannie and Freddie jumped on the bandwagon, while these government sponsored programs spent money on lobbyists who catered to the democrats. Of course business got greedy, but congress fed that greed.
October 7th, 2008 at 11:08 am
Liberals are adept at creating labels to hide the problem they don’t want to admit exists. People who lied on their mortgage applications to get houses they couldn’t afford are victims. People opposing illegal aliens are anti-immigrant, and child poverty advocates never blame the irresponsible adult children that have kids they don’t want and can’t afford.
October 7th, 2008 at 12:49 pm
The worse part about labeling yourself as a victim is that it leads you to believe you can’t help yourself out of your bad situation. If someone suffered a real change in circumstances after taking on an affordable mortgage, that’s understandable. If they bought something they couldn’t afford in the first place, that’s something else entirely.
October 7th, 2008 at 1:00 pm
I think the problem runs a little deeper than this. It is easy to point the finger at the lender or the government, but what it all comes down to is lack of financial education and commercial programming.
You look at the people who lived during the Not-So-Great Depression and you see people who learned to practice extreme savings. But as their kids grew up they were exposed to all the radio, TV and print ads telling them all the great stuff they could have. The only problem is that they didn’t have the money for all this stuff they were told was theirs for the taking.
Then along come the credit card companies to show them that they can have it right now! Instant gratification runs rampant and they get themselves into debt for things they really don’t need to survive. Then they have kids and pass their bad financial skills on to them and so on and so forth. We should change the national motto from “The Land of Opportunity” by adding a subline that says “Where You Will Receive 3-5 Opportunities to Get Deeper In Debt EVERY DAY!”
Now we have Check Cards or Debit Cards that look like credit cards. You may still be paying cash instead of incurring a debt with your purchase, but what do you think kids are learning when they see their parents use the card – swipe the plastic card and you get things! It reinforces that instant gratification mentality because nobody explains to them the importance of saving and living within their means.
So all this has compounded to where adult “children” are exposed to an opportunity to get into a brand new home with the latest in gadgetry and style. Do you really think they are going to consider too deeply how they are going to pay it off? Why? They haven’t so far. And those that do think about it are exposed to new and exciting terms like ARMs and the promise of the lenders that the rates will stay low, if not go lower. They did’t have the financial education to realize what a crock that was and signed on the dotted line.
We need to get back to practicing and teaching sound financial principles like earning the money you spend before you actually spend it and saving up for the things you buy. We need to get back to making the phrase “The Land of Opportunity” mean the opportunity to earn not the opportunity to spend. And we need to get away from government band-aid fixes that don’t have a chance of working and don’t really deal with the root of the problem.
What difference do you think it would make in terms of the impressions our children receive if the majority of the people in the U.S. went back to using cash instead of Check Cards? That may be a little bit inconvenient, but so is footing the bill for a $700 billion bail out package.
October 7th, 2008 at 6:35 pm
JLP: a little backwords: Wallstreet created supply, consumers created the demand.
I agree though. I’m glad more (albeit at a trickle) opeds, articles, and opinions are surfacing placing blame and control at the consumer level. Thus far we have been very wanting of personal responsibility, because it is far easier to blame others for something we had full control over. Yes, many other things happened too, but we as consumers had a great deal of control over our spending behavior.
oh, and everyone really needs to stop trashing credit cards and debit cards, because i have huge positions in visa. swipe, swipe away (on visa of course), just do it responsibly and within your means…on VISA.
October 8th, 2008 at 10:14 am
The problem here is that some things don’t work halfway. You deregulate and let people do what they want. Great. People do stupid things and the companies start to go under. Then the government bails them out. Of course that doesn’t work! If you let people have free reign, you also have to give them free reign to fail. The greedy will eventually fail and better companies will take their places.
If people can do whatever stupid, greedy thing they want and know that the government will bail them out, they WILL keep doing it. If they know they can fail, they are more likely to stick to a more sound, sustainable business plan. Or the company will fall and others less stupid will take over their market share.
October 9th, 2008 at 11:55 am
Thanks for writing this. It’s-not-my-faultism is running rampant at the moment. Any bail out is just going to worsen the foreclosure problem. We already have people walking away because they are upside down, lets not give others the reason to default so that the government will modify their loan to save them money.
October 13th, 2008 at 1:06 am
EZ:
Ahem. http://bit.ly/3QFeJd and http://bit.ly/1Myj3D
Christine and Karim:
Do you even understand what a credit default swap is? Blaming a product without having an inkling of what it is or what it does is inane.
Start here. Don’t worry, I’ll wait. http://bit.ly/3QuOgi
Now that you’re done with that, no leveraging? Even a traditional 30 year fixed mortgage at a good rate is LEVERAGE by the very definition. Most people could not EVER buy a house without the leverage of a mortgage. Be careful what you wish for.
At the end of the day, everyone here is right. Add up everything you all said and you have your answer. I don’t get this political posturing and pandering (like EZ, or maybe its racial), but all of this is correct. EVERYONE is responsible for this current situation. Companies, consumers, government (remember: you get the politicians you deserve), lenders, investment banks, mortgage brokers, NRSROs, and everyone else in between.
Remember the tagline from the movie “Traffic”? “No one gets away clean.”
Get over yourselves.