The Death of Direct Sales

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Posted By: Todd Schultz

I have no strong problems with David's comments, even if I don't agree with all of them. And Jim, David was responding to a specific quote claiming that borrowers had to share "a lot" of the blame for this mess when you called him out of his depth, then you want to list credit swaps, margin calls etc. as causes and that actually bolster his position--perhaps you should assess your own depth.

It is fundamental common sense that people don't lend money unless they're confident it will be repaid. What happened here with lenders was an old Badfinger song--"If you want it, here it is, come and get it, make your mind up fast.....Did I hear I you say that there must be a catch, would you walk away from a fool and his money?" That's exactly the pitch that was going on--"you can re-fi again in two years", "the market has been going up for several years and shows no sign of slowing down" etc. Mortgage brokers, underwriters and lending execs at best had their heads in the sand-- they were getting their's off the top. I remember when I refinanced in '05 my mortgage broker was at first incredulous and then actually upset that I would not borrow the full 80% LTV they were offering, turning away about $100K extra cash out. When I said I didn't want the increased monthly payment I was given the above BS lines I already quoted and also, my favorite, "you could just keep that extra $100K in a reserve account in case you were unable to make the monthly payments". Yeah right. So as and between lenders and borrowers, who were given the hard sell that they could afford the mortgage and that the offered deal was in their best interests, the blame falls far, far more squarely on the lender. BTW, notions of falsified loan apps, while possible, certainly weren't happening here in Arizona (where foreclosures are about 3x the National avg)--here you could damn near be pushing your belongings in a grocery cart and get a loan. Falsified or abysmally unrealistic appraisals, now that's another story.

The credit swaps, margin calls, etc, are indeed a large part of the problem--now tell me, how much involvement did Joe six-pack have with those? Maybe Sarah can answer that one. As for foreclosures, kick the people out on the street for lack of personal responsibility--where will that get you? They'll find apartments, gov't housing, live with friends, etc. Leaving aside unemployment and the possibility of inflation, you will STILL have a crisis because the housing market has TANKED!!!!! This is very much like the S&L disasater of not quite 20 years ago, when lenders were stuck with unbelievable amounts of property due to, hmmm, let's see, oh yeah, BAD LOANS. Credit got tight and markets puckered up. Maybe some here are too young to remember (enjoy being 33 James), but McPain sure isn't. Garn St. Germain and other, deregulatory laws helped bring that one about too.