BlogHer - Subprime Loans: The Perfect Storm - Comments

I didn't think you were

kyranp — Thu, 18 Oct 2007 08:01:15 -0500

I didn't think you were moralizing at all! I like your post and am so glad you raised this. I got the judging/moralizing out of some of the quoted material. I'm sorry, I should have made it more clear what I was responding to. And to be honest, I was probably responding to a whole lot more than was in your post!

I hear and read the news stories about the subprimers and the tone is so often as if they are subhumans. I wonder how many are like us, middle class, hard working, educated people who fell behind a little and got pushed down a lot.

Thanks for talking about this.

Kyran, Notes to Self

I agree...

Nina Smith — Thu, 18 Oct 2007 07:09:00 -0500

and collectively, we are learning from this economic mistake. Many homeowners did not have the knowledge to make sound borrowing choices which is why financial education is so important.

As I mentioned to Kyran, my experience is different from those in other parts of the county and perhaps, I should have explored further how lenders preyed on unsuspecting borrowers without the ability to understand what they were signing up for.

Nina Smith
Queercents
We're here, we're queer, and we're not going shopping without coupons.

Perspective is based on the view in front of us...

Nina Smith — Thu, 18 Oct 2007 06:56:58 -0500

Kyran,

It's interesting that this post was perceived as moralizing. Of course, that wasn't the intent so forgive me if the tone was offensive. The purpose was to promote a conversation about responsible lending and homeowners borrowing "irresponsibly" is part of this equation. Sure, the financial services industry is a big bad capitalistic machine, but consumers may exercise "free will" at any point in time. That said...

On further reflection, I admit that my perspective is skewed toward homeowners living in high appreciation housing markets and using their homes as an ATM machine over the past several years. Living in Southern California, I've seen both friends and relatives pull out equity for the most absurd things: trips to Hawaii that they normally couldn't afford, a new sports car, and to pay off credit cards (only to run them up again by living beyond their means). People believed their property would keep appreciating at a double digit rate forever and it had the same irrational exuberance as the dotcom era stock market.

Obviously, your view / experience is different living in Arkansas. You make excellent points about the financial services industry and I agree with you heartily.

Nina Smith
Queercents
We're here, we're queer, and we're not going shopping without coupons.

What About Business Ethics?

Gena Haskett — Wed, 17 Oct 2007 21:25:06 -0500

I'm not for absolving folks who ran to make bad deals but this was an industry wide practice to go after these types of potential home owners. People who are employed, working hard but don't necessarily have the financial education to understand what was put before them.

Brokers, agents, mortgage companies knew this was a "Sucker's Holiday" and they enjoyed it to the fullest. Owning your own home is a mantra we all take in as a drug.

I can only hold a single mom responsible for not understanding the contract and the true implications of that contract accountable up to a point.

These financial pushers hooked as many folks as the could before the house of cards started to come down. Did anyone in the industry say that this was a bad practice that should not be encouraged?

Is ethical business practices incompatible with making a profit? Apparently the answer is yes.

Gena - Out On The Stoop

Oh, let's see if I can calm

kyranp — Wed, 17 Oct 2007 20:53:48 -0500

Oh, let's see if I can calm down enough to say something coherent. People moralizing about money just makes me nuts. It's so Old Testament primitive: "I do well, therefore I am righteous and just."

My husband lost his job several years ago, and decided to strike out on his own as a freelancer. His income over time has been good, but cash flow is extremely unpredictable and erratic. We have often turned to our credit cards, not for vacations and designer clothes, but for gas and groceries. We have actually managed to keep this up for the better part of two years, but a couple of slow months in a row have tanked us beyond the tipping point.

Tell me, does it really cost my bank $30 to process a check when I am a day or two behind making a deposit? Not out of laziness, but because a client sometimes take 90 days to pay?

Is it really moral or even fiscally sensible for my credit card company to ding me exboritant fees and rachet up my interest rate when we are teetering on the edge?

Who is it serving for us to slide further and further into penalty/punative interest rate purgatory, inching us closer and closer to foreclosure?

Does it make anyone want to thump their chest and feel superior to know that not only are we not being cut any slack , we are being punished for being in a difficult circumstance?

Granted, I am a Canadian living in America, so I am coming from a different social paradigm. As a fellow Commonwealth expat once remarked to me, "Capitalism encourages humanity's baser instincts."

I believe he was right.

A society that kicks people when they are down, that not only refuses to care for the sick and help the vulnerable, but shames them for it, is no longer fit to be called a society. It's just a bunch of people living in proximity to one another.

Kyran, Notes to Self

Subprime Loans: The Perfect Storm

Nina Smith — Wed, 17 Oct 2007 09:13:22 -0500

“Home is a shelter from storms – all sorts of storms.” – William J. Bennett

According to USA Today, $300 billion in subprime ARMs will reset before the end of the year to higher interest rates. What does this mean to the borrower? Higher payments and a harder time refinancing. The Sun Belt and Rust Belt have been hit the hardest and homeowners in these states lead the foreclosure filings.

Yesterday, on Public Radio’s Marketplace program, Kai Ryssdal reported on the housing market:

The collective Washington economic wisdom about the housing market so far has been: everything’s gonna be fine. Both Mr. Paulson at Treasury and Mr. Bernanke at the Federal Reserve have said, more than once, that they thought the fallout would be contained. That’s the actual word.

But in a speech last night from the Fed chairman, and another one this morning from the Treasury secretary, we learned that might not be the case -- that problems in the U.S. housing market pose a significant risk to the economy.

Awhile back I noted the ripple effect that subprime loans have on the economy and cited a piece in TIME magazine explaining how it works:

When homeowners can’t pay… mortgage lenders get hammered… investment banks lose business… institutional investors are exposed… and they flee the stock market.

It’s a vicious cycle that winds up back at the door of the homeowner or former homeowner as the case now might be. Madame X at My Open Wallet writes in a post called All These Mortgage Sob Stories:

Stories about families facing foreclosure seem to be in the news every day. It’s usually a low- to middle-income family, often black or latino, who are working hard to achieve the American dream, but they’ve let someone talk them into buying an overly expensive house with some kind of crazy financing that is impossible to pay off. The tone of these stories always seems to teeter between portraying the home buyers as victims and making them look like idiots who should have known better.

Do you just want to smack your forehead and say “what were they thinking!?!?!” Do people who are dumb enough to fall for these offers deserve everything they get?

According to the blogger at It’s Just Money, critics point their fingers at who is responsible - here are the main targets:

Mortgage Brokers
Appraisers
Regulators
Lenders
Wall Street
Real estate agents

“Not a bad list,” he writes… but one question:

Where are buyers/borrowers on this list? Do they get none of the blame?

You make $50,000 and buy a $450,000 condo because your realtor and mortgage broker tell you that they can “get you in with nothing down, and after it goes up you can refinance”? Shouldn’t we expect the borrower to have a “wait a minute” moment?

Or in the case of subprime refis. You bought a house in 2003 for $375,000, and a mortgage broker tells you that it’s probably worth $500,000, and wouldn’t you like to pull that equity out? You only make $65,000, and your credit isn’t very good, but jeez, I could sure use a hundred twenty five grand! Let’s see. I can pay off our credit cards and car loans. We can remodel the kitchen. And we’ll still have enough to buy that boat we wanted! Sweet!

Sure, subprime loans were crucial in contributing to the boost in homeownership and helping people pay off their high interest consumer loans, but at what cost?

Philip Brewer at Wise Bread gets the sense that there’s a kind of “pox on both their houses” attitude to the problems in the subprime mortgage markets. He writes:

People who worked through their own credit problems (or avoided having any) can’t stir up much sympathy for people who bought houses they can’t afford--and pretty much nobody has any sympathy for the mortgage brokers and hedge funds that lent them the money. A new guide from Americans for Fairness in Lending, though, shows that the damage actually hits at every level, from the individual borrowers (including borrowers with good credit), through the neighborhood, local economies, and the national economy.

Click over to better understand the negative impacts of the subprime lending crisis.

So where do women stand in this equation?

BlogHer’s Suzanne Reisman looked into this recently with her post entitled: The Real Story: Attack of the Predatory Lenders on Single Women Homeowners. She writes:

While it is great that women are aggressively pursuing that most American aspect of the American Dream, some of these statistics are alarming, like the fact that single mothers are far more likely to spend over half of their income on housing costs than single dads. I’m fairly certain this is not because they are buying McMansions, but suffering from the male-female earnings gap and the lack of affordable housing options that exist in many communities.

Who is likely to be a prime candidate for foreclosure? Anyone who has weak credit, currently spends over 50% of their income on their housing, and who is facing a 150% increase in mortgage payments. That’s right: single women, our fastest growing segment of new homeowners.

Sandra Guy, a business reporter at the Chicago Sun-Times provides some statistics at Women’s eNews:

Last December the Consumer Federation of America, a Washington-based consumer research and advocacy group, released a study finding that nearly one-third (32 percent) of female borrowers receive sub-prime mortgage loans of all types, compared with about a quarter of male borrowers.

Women with higher incomes and women of color reflect the extremes of the disparity. Women earning double the median income of the area where they live were 46 percent more likely to receive sub-prime mortgages than men with similar incomes.

Women of color were the most likely to receive sub-prime loans at every income level. For example, upper-income African American women were nearly five times more likely to receive sub-prime mortgages than upper-income white men, the study showed.

So what should ladies do in this complex mortgage marketplace? Pre-mortgage counseling is the best bet. Without it, a consumer can be her own worst enemy. Make sure it’s a certified housing counseling agency. You can search the ones that HUD sponsors at their web site. They can give you advice on buying a home, renting, default, foreclosure, credit issues or reverse mortgages.

Anyone have any experiences to share about their mortgage? Comments encouraged below.

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Nina blogs about money at the new and improved Queercents.