The Giant Pool of Money, by TAL and Chicago Public Radio
This NPR radio episode runs just under 54 minutes. Click on the “download” button; it will take several minutes to download. While you’re waiting, browse through some of our other articles on Ethics in Mortgage Lending!
In order to better understand why we are currently facing massive mortgage loan defaults of epic proportions, this radio program takes us back in time and helps us understand how investors looking for high yields created a groundswell demand for risky mortgage loan products.
So are these investors to blame for the mortgage industry crisis?
It’s safe to assume that no wholesale lending reps held guns to the heads of loan originators and demanded that the LOs originate pay option ARMs.
Perhaps it is a choice. There is at least one bank that decided not to participate in subprime loans and now that bank is not seeing record default ratios on their residential loans, though their story has not yet been told in relation to commercial development loans and construction loans.
There must have been some particulary serious violations that prompted this law. Wouldn't it have been easier just to make ...
When the issue of fudicial responsibility began coming to the forefront I felt a sense of relief. I guess I ...
Comment by Rita Green on 10 August 2008:
I believe that the lenders, regulators, and Loan Originators are to blame for the mortgage industry crisis. Greed drove them into granting and/or selling loans to some who could not afford the loan.
The No Income No Asset Verification loan was okay but the guidelines under which you could qualify should have been more rigorous.
Stated Loans again are fine.
The NPR Broadcast mentioted very little about ARMS and Interest Only Loans.
Of the foreclosures what percent were caused by huge increases in rates due to ARMs? The Government should have regulated the percent of which loans could increase via ARMs. I have talked to many people who have lost or are in danger of losing their homes and overwhelming the response has been that they were able to make the payments until their notes jumped by $400 and in one case $2,000 per month. Such an increase in a monthly note is ridculous! Many consumers did not understand that their note would increase at the end of a specified time period.
Loan originators failed consumers because they did not explain to them that they needed to refinance by a specified time period to avoid the huge increased monthly note caused by their rising ARM rate. In order to refinance consumers would have to keep their credit and debt managed so that they would qualify for a loan at a specified date.
Greed is the root of all evil. It was greed that caused Lenders to create loans that would allow them to capitalize on the investment market. It was greed that caused LO’s to get people into loans that they could not afford and now we are seeing the consequences of what being too greedy can do.
In the end it is the middle class taxpayers who will have to pay for the mess that the Lenders and government caused by loosening the guidelines by which you could secure a home, and creating loans that had skyroecketing interest rates.
Comment by jaesuk cavner on 11 August 2008:
its quite obvious that massive greed concerning all financial institutions are to blame for this debacle
Comment by Kevin Haynes on 8 September 2008:
Yup, investors looking for higher than average return are to blame. Lenders, such as Countrywide promoted themselves “your pay option ARM lender” are to blame as well as originators promoting these products and stickiing borrowers with 3-year pre-pay penalties and collecting 2-3 points on the back end.
Comment by Laura Young on 16 September 2008:
I believe the lending industry as a whole are to blame for the crisis we find ourselves in today. I believe that the general public was ill informed as to exactly what the terms of their loans were and the consequences of the ballooned payments to come. Being faced with the larger payment as well as a pre-payment penalty which many consumers weren’t aware they had made it impossible to excape the inevitable forclosure and weekend economy.
Comment by Sandi Paradiso on 28 October 2008:
Amen, Amen Amen and Amen. Those banks that decided not to jump on board is the kind of bank I want to do business with. Bank of America is one of those banks, I watched a segment on TV. They decide not to get into the subprime lending, just to put anyone in a house. There mentality was about the consumers, What is so bad is it does effect all of us. No one held a gun to any LO’s head, but when you have your boss screaming for you to sell sell sell, what do you do? Maybe that would have been a good time to find another job, But as the circle goes, LO’s where making good money and they probable lived above there means, so they had to continue to do what they had to do, and the circle goes on and on. Hopefully we all have learned a lesson. I hard one at that
Comment by Michael Belisle on 3 November 2008:
I believe everyone was to blame including but most importantly the consumers taking the money. If I gave you 1 million dollars and told you had to pay me back in one year and the worst that would happen if you didn’t was you would lose your house would you do it? That was what was happening with people cashing out there equity year of year to live. They new they would not be able to pay it back. Basically every lending institution was giving away money not thinking about the pay back of the loan. You have to put some Blame on the borrowers signing the line.
Comment by Jeff Rafuse on 4 November 2008:
I believe you cannot blame any one party for the problem we have. For sure, many loan originators are partially to blame. Also, mortgage lenders deserve some blame, and also Wall Street. I agree that greed was the predominant factor for every party involved, but, that also applies to some of the homeowners. It is unrealistic to assume that every homeowner that can’t afford their mortgage right now was a victim only, and was never told what their loan was. I talked with countless prospects that simply demanded that I find lower payments than what a conventional 30 year mortgage would offer. I lost business sometimes when I would suggest that a prospect re-evaluate their price range rather than take a risky product.
Comment by John Mayfield on 6 November 2008:
It looks at though it started with the investors. You can’t entirely blame them though. As an LO they should have seen that a guy making 37,000 dollars a year could not possibly afford a 550K mortgage! It failed before it started.
Everyone had their hand in the pot. The investors started the ball rolling, the LO’s wanted to cash in but the bubble could have not gone as high if appraisers would have been realistic and never inflated the appraisal. Then the lenders should have never issued the loan in the first place. The cycle just went in a circle.
Comment by Garry Carlin on 7 November 2008:
Oh boy, you’ve done it again. A question that brings out all kinds of answers.
I’m just not sure blame or credit can be placed on any one sector. I’ve been in this business long enough to see this happen at least twice before, just not quite to this extreme. Without exception it has always been driven by supply and demand both on the side of the investors and the home buyer trying to get into that first house. It goes back to that balancing act of trying to supply a product that the consumer will take advantage of while keeping the investor happy. If either the investor or the home buyer gets the least bit greedy everything goes up a notch.
Up and up it went until some little piece broke then it all imploded. The bright spot is now modest buyers can once again afford to buy a home!
Comment by Denise Swafford on 9 November 2008:
As a former underwriter and having dealt with these bulk bundles of loans that were sold off this current situation was forseen. Banks that state that they made no subprime loans is not totally accurate. They brokered out those loans to larger bank so as not to service them and therefore not responsible for a buy back after the 3 to 6 month window.
All parties are involved and to blame. Borrowers wanted more than they could afford. Lenders wanted to get every one a loan regardless of whether or not they could afford the loan. The pools wanted the investment, they wanted some risk, then high risk, and it was provided. Sound financial decisions were thrown out the window and that opened the door to opportunists.
Gone were that days that a loan officer sat down with a borrower and really addressed all the expenses and needs owning a home required and how to live with in a buget.
I know from my own experience that the upper management didn’t care what production saw….they were concerned with continuing the cash generating juggernaut.
The problem is that not everyone will learn from this collapse, in my humble opinion.
Comment by Sarah Batson on 12 November 2008:
I agree that greed of all parties involved caused the colllapse. Lenders, investors, LOs, and homeowners all contributed signifcantly and in their own way with the same motivation of wanting more or too much without thought of responsibility or accountability. One could have had this effect, it took all to come together and contribute in order for the cycle to be complete.
The changes that have been and are being made are attempting to rectify the factors that have contributed and to move forward. The changes are also making it increasingly difficult to approve clients, often even ones that seem to be valid and sound. I am hoping that a balance is found sooner than later as this is a major contributing factor to our economy and the american dream.
Comment by Catherine Rawlins on 17 November 2008:
Really this all gets down to a lack of ethics among every participant who chose to play the game. It is also frightening to realize that the entire world’s economy could be brought down by a systemic failure of oversight by the very systems that were designed to protect us.
There will be no easy answers or solutions. And, it will be years before we fully recover.
I will be very thankful if I still have a job in the mortgage industry a few months from now.