DISCUSSION: Did We Learn Our Lesson In This Mortgage Crisis?

The American Dream shouldn't just include apple pie, home ownership and baseball, it should also include the ability to pay for such things.

You've heard the phrase, "It takes two to tango" right?

Well, the Bank of America, J.P. Morgan Chase, Citigroup, Residential Capital (Ally Bank/GMAC), and Wells Fargo & Co. now have to pay the piper through a massive nationwide settlement for using deceptive and abusive lending practices, which includes paying up $140 million to the state for mortgage claims.

These banks represent only one dance partner in this mortgage mess and I can't help but wonder…are we as borrowers being more accountable?

According to a story in the Milwaukee Journal Sentinel, people who were harmed by bad lending practices may qualify to have those terms modified, or (if they've already lost their home) receive a cash payout.

“This agreement provides real relief to homeowners and real reform of servicing standards – now,” said Attorney General, J.B. Van Hollen. “The people of this state, and our economy, have suffered enough from the unfair and deceptive practices of the mortgage industry. Today, with this settlement, the banks and mortgage servicers are being held accountable and, more importantly, homeowners and communities are receiving much-needed assistance.”

But when I listen to how we talk about the mortgage-banking crisis, I find it interesting how we've got our either/or thinking screwed on pretty straight on this topic. You'll often hear people talk about how those greedy people should never have taken out those home loans or you'll hear the other side talk about how those greedy banks should never have given those loans. But we don’t often discuss both perspectives at the same time. And, I think that's a problem.

Quite frankly, I think both views form an accurate picture of the problem and it would serve us well if we stuck to understanding how both dynamics caused this mess – those who bought into the notion that we were owed these homes without being required to pay the loans were just as wrong as the corporate banking officials who thought they could get away with employing deceptive loan practices.

I understand there are some who were deceived and some who had the ability to pay, but lost their jobs. I'm not talking about those situations. I'm talking about people who got in way over their head and had no ability to pay for those loans in the first place, and the banks that took advantage of people like that.

We all fell in love with those home flipping and remodeling shows on television. We wanted a bigger American Dream, or at least one bigger than our neighbors'. Some of us wanted the warm and fuzzy feeling of home ownership, but we failed to accept the responsibility of paying for home ownership. And there were some banks that were more than willing to take advantage of us through deceptive loan practices. I mean, what in us thought we could get a $325,000 loan when we only made $23,000. Conversely, what bank thought that was seriously a good loan?

My point is that while this settlement seems like a first step in the right direction toward developing responsible lending practices we also need to be responsible borrowers. Gone should be the days of “buy now, but never pay.” Gone should be the thinking that we have to own it all to become someone of importance. Gone should be the thinking that our self-worth is the sum total of what we own. We were foolish to think such things and this thinking absolutely needs correcting.

Still, the public scrutiny currently taking place within these broken financial institutions should root out those responsible perpetuating faulty lending practices, and we need those institutions to be replaced with ones that believe in sound and consistent lending practices. Why? Because no one wins when a loan fails – not the lender, not the borrower, not the community, and not our country.

We need our lending institutions and our citizenry to be financially sound in order to move in a positive direction again. And, I don’t believe for one second that this is a Republican or a Democratic idea, it’s a fundamental principal that adults should always cultivate in them selves and should never be an extension of politics. If someone lends you money in good faith, you borrow in good faith. I don't really understand why we needed to make it so complicated.

To find out more about the settlement, click here.

James R Hoffa February 11, 2012 at 07:38 AM
@Bren - Those 'homebuyers' that were 'taken advantage of,' had absolutely no skin in the game, as sub-prime borrowers typically offered no down payment on the transactions they were involved in. And for those that re-fied and pulled the equity out of their homes only to lose them later to foreclosure, I ask - what did you do with the money that you pulled out? Remember Michael Moore's depiction of foreclosure, or rather the alleged 'robbery' that he caught on film for us in his 'Capitalism: A Love Story' (2009)? Turns out that those poor innocent people cashed out the equity in their home to go on luxury vacations and buy a brand new pick-up truck and boat. But these are the people that you now want me to feel sorry for and actually deserve the money from the settlement for being deceived by the big bad evil bankers! You've got to be kidding me!!! So how exactly were they ripped off at all? If anything, they benefited from being able to live well beyond their actual means for an extended period of time, didn't they? They are certainly not victims, nor are they in any way deserving of any of the settlement funds! Instead, those funds should be returned to the people who got stuck with those people's bills - the financially responsible taxpayers of the state like me!
Tom Kamenick February 11, 2012 at 01:16 PM
Bren, you either do not understand the budget process, or understand it and are intentionally ignoring how it works. The initial budget (Act 32) is a 2-year projection. As that 2-year period progresses, there will ALWAYS be changes up or down, either a shortfall or a surplus. In the middle of the process (and again at the end, if necessary), budgets are adjusted to meet those changes. Walker's budget was balanced. Over time, it's become off, but only by less than one quarter of one percent, which is very good. In 2009, Doyle had a budget that was off by 6.6 billion - about 10 percent. That's not something he deserves blame for, just used to illustrate that this $140 million shortfall is (a) normal and (b) not a big deal.
Bob McBride February 11, 2012 at 01:29 PM
Good article, Denise. I don't know that we've learned our lesson when in some quarters we're castigating the banks for not making more loans than they currently are and celebrating as good economic news an increase in consumer borrowing (mostly in terms of increased credit card debt related to retail purchases). We as a nation seem to develop a sour taste when it's suggested that our inflated standard of living contributed to a large degree to the situation we find ourselves in today. Even when we do acknowledge our involvement, we seem to want to blame it on everything from deceptive advertising to whichever group of politicians we choose to blame at whatever point in time we choose to point out as being that when we were all "forced" into a cycle of rabid consumerism. I don't know what it's going to take for folks today to learn the lessons my parents did by going through the depression. We've all heard the stories, have come dangerously close living through it ourselves and we're still not out of the woods. And yet the moment we can, we seem to want to jump right back on the same freespending road to debt that got us where we are now.
Brian Dey February 11, 2012 at 02:33 PM
I think one of te biggest problems was the buying and selling of mortgages by speculators. Lenders, not having full ownership in the loans they make, led to some extremely high risk mortgages, realizing that they would only hold the loan for as little as a month. Debt ratio was raised to 50 -60%, whereas in the mid 90's, mortgages required 40% debt ratios. Lenders today have realized that lesson and are tightening up that requirement. Refinancing at more than 100% value was another key ingredient. One of the biggest causes to overvaluation, which led to the crash. Local governments played along to raise additional revenue through property taxes. The consumer saw this as a cash cow, and with extremely low interest rates, they were more than willing participants. While this practice is now held in check, I'm not sure that it will ever go away. Lowering interest rates has done more harm long-term to the economy than good. Savings is at an all time low, at least through traditional sources. Taking reserve capital out of the market and creating false consumerism (more purchase on credit) will hurt the economy the longer as more dollars are printed to make up for the loss of cash on hand. The lenders are getting it, as they are now getting out of the practice of 0% down home loans. The biggest lesson one can learn from this is that no one here was a victim. Poor choices were made by all, and until we learn that lesson, nothing changes.
Don Niederfrank February 11, 2012 at 07:26 PM
From my reading/listening, the global recession was a "perfect storm" with a number of parties seeking acquisition (read: greed) with more risk than they were aware of. From Greece to Port to NYC, we overreached. I think the biggest factor in prolonging, if not perpetuating, this has been the creation of mortgage derivatives, the overvaluing of the same by raters and then when it was realized these bundles were untrustworthy investments, the paralyzing of inter-institutional lending.


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