Monday, October 06, 2008

The Sky is Falling: Blame Mortgagees

A common refrain I'm hearing in reference to this apparent disaster we're in is that the fault lies with the people who took out mortgages that they can't afford. In that vein, we should do nothing to help out because these people deserve it.

It's not often referenced in real newspapers but it's there in the mouths of right-wing pundits, bloggers and Republicans (who like to blame "minority lending" specifically).

I hate to tell you, but it's not working out that way.

First of all, this crisis is spreading far, far beyond the actual people who took out those bad mortgages. It's hardly morally acceptable to say that retired senior citizens who have responsibly paid off their mortgages deserve to have their retirement funds destroyed.

Second, the people who took out those mortgages received professional financial advice that told them the risk was easily manageable.

We received professional advice when we went to get our mortgage. We were advised as to a maximum house value and mortgage payment based on salary data our bank required of us. (We live in Canada where there are rules about these things). We looked at those numbers and said, that's okay, we'll get a much smaller house than the maximum we're allowed. We're conservative that way.

The people who took out these subprime mortgages were advised that they could afford these houses using some financial trickery (overappraising the house, using the extra money as mortgage payments, selling the house for more). Not everyone is smart enough to see through this tale, especially when all of the financial advice is consistent (consistently bad, but how do you know? Think "trepanning" or "bloodletting".)

Do people deserve to be punished when an entire industry has intentionally and maliciously led them astray, en masse, for its own aggrandizement?

I wouldn't think so, but you may differ.

I don't mind watching all those subprime mortgage brokers suffer. They won't, mind you, but it wouldn't bother me if they did.

What bothers me is that the rest of us are going to hurt while they fly high. That's why the government has to step in and return confidence to this arena - and that will require heavy-duty regulation.

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Catelli said...

I'm one of those that put some of the blame on the borrower.

However, at this point that is neither here nor there as to whose fault this is. It was a broken system that allowed this to happen.

Now its a crises. It needs fixin', because as you point out, EVERYONE is affected. Responsible borrower or not.

On the depressing side point, the US has pissed away almost $1 Trillion aimed at supporting the wrong part of system. On that I'm with you, more (if not all of it) should have gone to guarantee the borrower's loans.

Greg said...

They also pissed away hundreds of billions in Iraq.

I'm not saying the borrowers are utterly without blame. Just as we must look at all those people with SUVs and credit card debt and say "fool", we must place some of the blame on the borrowers.

But really, the lion's share has to go to the crazies that deluded these uneducated people in to taking the mortgages in the first place.

Catelli said...

Your point brings up a possible upside. How much longer will foreign creditors fund the war in Iraq?

That can't be sustainable (well it never was) in the current environment.