Two things one could have learned while listening to Glenn Beck this morning (and in the spirit of full disclosure, I disagree with BOTH):
1) We are experiencing a credit crisis because illegal immigrants bought houses using loans that did not check their income, and now they’ve quit paying their mortgages.
2) This all started back in 1992 when the government ’strong-armed’ Fannie and Freddie to make more loans to ‘minorities’. Minorities, who according to Beck, should not have been allowed to purchase homes in the first place.
First of all, blaming any group of consumers for this mess is ridiculous. To add insult to injury, he actually comes off as quite racist by blaming sub-groups. Not cool, not fair, not accurate.
To clear this up a bit, there were/are loans out there designed for the immigrants of the ‘undocumented’ variety. If someone has a Tax Identification Number, but no SSN, they can still buy a home. They just have to put 30-50% down and pay higher rates. Sound attractive to you? Didn’t think so. They put big money into these houses, and have seen their equity go out the window. They thought they were buying the American Dream, and they lost big. As did the majority of Americans. Not sure why he chooses to blame this group, easy targets I suppose.
Toward his second ‘thought’, lending standards did not loosen up just to invite ‘minorities’ into the game. They loosened to let people with POOR CREDIT into the game. Again, a tad racist here- is that necessary? The private enterprises wanted a way to compete with safe, FHA loans that already helped people with low credit scores and little savings buy homes. Instead of loan officers putting them in fixed, low-rate FHA mortgages, they instead said ‘Hey, we can do a 2 year fixed at 7.25%. Make your payments and come back to me in two years to refinance!’. This accomplished two things. One, it kept a good source of business active for many an unscrupulous company. And two, it meant that those idiotic Wall Street guys who bought Mortgage Backed Securities would have a steady flow of action as well. All these ‘new and innovative’ loan programs were designed with a ‘churn and burn’ and ‘keep it flowing’ mentality in mind. Nevermind the fact that it was unsustainable!
Well, we all know what happened here. People went back to refi out of these loans, and couldn’t do it. Values dropped. Oops, there goes that idea!
I know what happened, I saw it. I will not blame the consumer for ANYTHING, and I certainly will not pin this economic disaster on one or two groups of people.
I had a manager once tell us to LIE to people about their CREDIT SCORES, so we could put them in 2/28 ARM’s (side note, I never did that and left that company shortly thereafter). I worked with brokers who did not HAVE ACCESS to FHA loans, so instead of someone getting 6% on a fixed rate, they were paying 7.25% on an adjustable. They were put into the wrong loans by PEOPLE WHO SHOULD HAVE KNOWN BETTER AND DONE THEIR JOBS!
Glenn Beck is an entertainer, and I know I shouldn’t take him seriously. But at some point, people need to get real here. We cannot blame what happened on ‘those greedy low-income people who bought McMansions!‘ (Beck’s opinion, not mine). They did not lend the money. They did not create the loans. They simply were the pawns used in a game where greedy bankers made money hand over fist while the getting was good. And the getting never stopped. Now that the bankers have stopped making so much money, what do THEY do? They ask for a handout.
What is wrong with this guy? Better yet, what is wrong with people who actually believe that one or two groups of people caused the greatest economic meltdown since the Great Depression? Must be nice to have such a simplistic view.
Last 5 posts in Uncategorized
- Social Networking: A Virtual Landscape for the Real Estate Market - October 22nd, 2009
- How to boost your credit score – Part 1 - October 15th, 2009
- FTC Video On Foreclosure Scams - October 1st, 2009
- Why you should consider doing everything possible to AVOID foreclosure - September 25th, 2009
- "There Will Be Death Panels Enacted By This Congress" - September 25th, 2009
- Stumble it!
- Categories: Uncategorized
Comments
16 Comments so far
Andrew Adams
What went wrong is real simple…Loans were given to people that didn’t have the capacity to pay them back.
Plenty of blame to go around. We all know what happened it’s the why that gets fingers pointing. How exactly does a bus boy that makes minimum wage end up with a $300,000 mortgage?
2 years ago you could actually give this type of borrower more than one loan option. No Doc, No Ratio, Stated (on a w-2 employee?). Ridiculous when you think about it.
For that guy to get a loan:
1. he needed to think it was a good idea
2. Needed a RE broker to start showing him property
3. Needed these wacky programs to be available
4. Needed a Loan Officer to review his loan options and make him comfortable that he could swing the payments…how that happened is beyond me. I still tell people this will be the payment. I can get you approved for that, but I am not the one that has to write the check each month you are!
Plenty of blame to go around…but we don’t need to blame anyone we need to deal with it.
Dan Melson
It wasn’t “lending to minorities” that was the problem.
It was the fact that trying to curb the abuse was demogogued as trying to keep homeownership out of reach of minorities.
In other words, people who wanted the lending madness to continue were using racism as a “cover issue” to tar the people who wanted to fix the problem. They also used “class warfare” as a cover issue. There’s a very good ten minute video here (I embedded it in my own site):
http://www.youtube.com/watch?v=H5tZc8oH–o
It lets the Republicans off too easy, but it does say where the main obstructionism came from.
(Ignore about the last minute; it turns into what’s essentially a campaign commercial)
Guest Post: The Repeal of Glass-Steagall Act is to Blame for the Current Crisis, Not Our Neighbors | MoveSmart.org: Technology for Residential Integration
[...] Jennifer Monastero has a new post up at Zillow’s Mortgages Unzipped blog that echoes the story of Stella’s neighbor as [...]
Ken Kopper
While that might not have been the entire cause, in some areas it was a major cause. Take for instance, Northern Virginia with large hispanic population..I have seen tons of stated POA’s as well as instances where hispanics were taken advantage of by other hispanics using them as “straw buyers”. Everyone gets paid including the buyer (who creeps back into the woodwork or back to Mexico) and the house goes into foreclosure. I am not saying Beck is correct as far as being a national epidemic but it is certainly one of the major abuses that took place as far as predatory lending.
Bob Yopko
Jen-
I agree with most of your post, except the comment “I will not blame the consumer for anything”. I will. People made all kinds of decisions based on greed. Honesty went out the window (”my loan officer told me to lie” doesn’t excuse you for lying) and things got ugly. There are genuine victims amongst homeowners, and there are those who created their own nigtmares. We need to distiguish between the two.
Jennifer Monastero
Dan- what did these loans offer that FHA didn’t? I’m sticking to my theory that Wall Street just wanted a bigger piece of the pie. FHA and state funded programs (like CHFA here in CT) were more than adequate to cover the ‘low-income, low-credit score’ contingent. You are seeing it now. FHA is making a comeback- but it was always there. So why were we pushing risky loans when we didn’t have to, and when they were not in the best interests of the borrower? I say the ‘collective we’. After all, we are supposed to be the professionals here. How many people second-guess their doctor?
Ken- I saw it up here as well- not so much the straw buyers, but the getting taken advantage of. They still put HUGE down payments- which went right into the pockets of the lenders. When the market soured, and they walked, the banks turned around and sold off the houses again. Did they lose some money? Not on these loans. Not in my experience anyway. Two years of interest only payments, plus a 35% down payment, and those lenders have little loss, if any at all.
Andrew- well said.
Jennifer Monastero
Bob- I agree to a certain extent as I do think that the American mind-set of ‘must-get-brand-new-Hummer-and-plasma-TV-for-Super-Bowl’ is partially to blame. BUT, and I will keep harping on this, the consumer did not invent these loan programs, they did not advertise the old ‘consolidate your debt into one EASY payment!’ every 30 seconds on television, they did not underwrite these loans. We, as professionals, had a responsibility- and I hate to say it, but some churn-and-burn people SHIRKED that responsibility in the name of a paycheck. Not cool. I’m sure we all have our stories of an AE coming in from a now-defunct lender telling us EXACTLY how to get around the rules. Also, not cool. I also think that while some people DID create their own nightmares, are they so “bad” that they deserve no compassion? Fine, they dug their own graves. Did the lenders not arm them with the BIGGEST BACKHOES you’ve ever seen???
David Conaway
I’m not taking any sides on this one. I will say that the reason these people weren’t put into FHA loans was they needed stated income/stated assets. You have to qualify for an FHA loan. So to answer your question “what did these loans offer that FHA didn’t?” Stated income, stated assets, % only, no mi, teaser rate, lax appraisals (how many FHA contracts were turned away back then due to the strict appraisals?) on and on and on. I didn’t do any of these.
Dan Melson
>What did these loans offer that FHA didn’t?
Off the top of my head:
Zero down financing
Higher limits (FHA limits precluded everything except low end condos until the limits were raised)
quicker approval
lower rates in many cases
Stated Income Financing (No government plan offers this!)
Definitely lower payments due to “interest only” and negative amortization financing, at least temporarily
The appearance of being able to afford a property
Loose underwriting standards, especially for subprime. Fannie and Freddie would have been fine if they had kept to the A paper market with the requirements for fully indexed fully amortized qualifying rate (and at a lower DTI for hybrids than fixed rate loans). They didn’t do that. Instead, they were qualifying people based upon initial DTI with the teaser payment, ignoring what was going to happen down the road despite the fact it was as certain as gravity.
We’ve got all kinds of programs here for low income and first time buyers. They run out of allocations at Warp speed (We get our MCC allocations around April 1 and October 1. I went to apply for one with some clients on April 20th, and the money for the city of San Diego was already gone).
But that dodges the main reason why these were happening: The lenders involved wanted an increasing piece of the pie, and their legislative allies ran interference to stop that meddlesome Bush Administration from ending their highly profitable (on paper) party. To encourage consumer participation, they offered things that consumers want - low payments for a while, zero down financing, stated income financing, etcetera.
But it isn’t fair to remove all blame from consumers. If someone offers you money (of all things) at a theoretical cost two to ten times cheaper than everything else, a responsible adult would want to check it out, knowing “That’s too good to be true.” Instead, most of them chose to take the path of willful ignorance: 90% of the people I directly told exactly what was going to happen - which was what indeed transpired - decided they wanted to go with a different loan officer who would keep their mouth shut about the trap they were walking into. Mind you, believing in the ability of a adult to decide to take a risk they’re informed of, I was perfectly willing to do the loans providing they were willing to indicate I had told them these facts. The vast majority instead chose to go to another loan officer who pretended the trap wasn’t there. This didn’t stop that trap from slamming shut on them. All it did was allow them to pretend that everything would be fine until suddenly, it wasn’t.
Jennifer Monastero
“I will say that the reason these people weren’t put into FHA loans was they needed stated income/stated assets.”- first of all David, who are ‘these people’ you refer to? Also, why did they NEED stated income/stated assets? Was there some sort of nationwide directive that everyone NEEDED to buy a home instead of renting? Be serious. They did not NEED these loans, people like us NEEDED them so we could qualify more people. Big difference.
Dan- a few things. You say ‘Higher limits (FHA limits precluded everything except low end condos until the limits were raised)’- prices would not have skyrocketed if there was lending restraint, so to my mind, that was kind of a self-fulfilling prophecy. And again, no one had a NEED to stop renting and buy a house.
Also you mention the lax underwriting standards and these ridiculous loan programs. To who’s benefit were these programs formulated?
To answer that question, I turn to a little thing called ‘motivation’. The borrower had the motivation to buy a home, get saddled with 30 years of debt, get in over their head, and put every penny they made towards their mortgage payment. On the flip side, you had builders, real estate agents, mortgage people, lenders and Wall Street investors who stood to make thousands, tens of thousands and even hundreds of thousands of dollars. Guess who had the greater motivation to keep these loans flowing?
If anyone can please explain to me what any of this has to do with ‘minorities’ and ‘illegal immigrants’ though, that would be great. I still think this is a just scapegoating at it’s finest. And I really wish loan professionals would take some more responsibility.
Dan, in your defense, you mention the people you turned away going elsewhere- and that was commonplace. When you have TV, NAR, family and friends saying one thing, and some random guy you just met for a 30 minute appointment telling you another, my guess is the ‘numbers’ side will fall to the ‘emotional’ side. If people were strong, and only did the things that would be good for them, do you think it would cost millions of dollars for a 30 second spot during the Super Bowl? Advertising works. People fall for new things all the time.
One final thought here. Companies like IndyMac and WaMu had higher-ups with MBA’s and people called ‘risk-assessment managers’ that determined that these loans were “good to go”. If THEY thought so, how did mainstream American consumer stand a chance??? Stated income is one thing, but 100% financing, SISA, with a 540 score and 55% DTI is a bit much. Give me a break!
Marty
In defense of Mr. Beck, he has layed it out of the most common denominator. Both of his statements are true. How the hell could any banker (without a sense of greed) lend to a non-citizen, much less an illegal alien, knowing full well it was a risky venture? Even if they did qualify with a large downpayment, in cash (which consequently was most likely earned under the table, while paying no taxes) greed from the mortgage broker, the bank who loaned the money, along with the virtual guarantee that Fattie and Frumpy would absorb the risk, the temptation far outweighed the need to do what was right in the first place. I can hear the brokers and bankers now……”hey, I did my part, now pay me for my slice of action. I just bought another house, and i’ve got a payment due.
The snowball just continued to roll. You’re just mad because Glenn tells it like it really is, political correctness be damned.
Jennifer Monastero
Anonymous Marty- are you in the industry? I’m curious because you seem to think this is some silly thing that we can just lay at the feet of one or two groups of people. You really think what this guy says is true? Are you kidding? MILLIONS of people bought homes they shouldn’t have, not just illegal immigrants, not just ‘minorities’. Glenn tells nothing ‘like it is’ because he does not live in reality. He is an entertainer, and the fact that people actually believe what he says is actually frightening.
Thank you for proving that racism is alive and well in America though. Very nice.
Stop blaming the CRA | Mortgages Unzipped
[...] how poor people and certain ethnic groups were being blamed for our current mortgage crisis. ( http://www.zillow.com/blog/mortgage/2008/09/26/glenn-beck-blames-housing-crisis-on-lending-to-minori... ) For some strange reason, people felt more comfortable blaming this disaster on one or two small [...]
Pissed Off
Don’t be a tool illegal immigration is destroying this country and the housing problems are just 1 symptom.
Hospitals in financial trouble because illegals go to the ER to have babies so they are citizens that then get benefits.
80% of violent crime warrants in LA county = illegals.
and on and on and on
Jennifer Monastero
Dear KarmaKandy, I am sure that if you actually research something, rather than spout off sound bites you hear on the radio, you would find that your scapegoating and irrational fear of ‘illegal immigrants’ is really unhealthy and unwarranted. You can’t just take two lines from a rather silly internet forward and expect to make a case for what you believe. The issue at hand is the housing crisis. If you truly believe that illegal immigrants have anything to do with it, please present facts to support that. At the expense of asking too much of you, kindly read the following: http://latimesblogs.latimes.com/readers/2007/11/internet-immigr.html
and
http://www.snopes.com/politics/immigration/taxes.asp
Also, nowhere in your comment do you propose a solution. Surely you have one.
Ignorance is what is destroying this country, and there is no excuse for that.
Tchaka Owen
Jen, I’m not sure if you or your readers have read this article. It’s one I’ve been meaning to post on AR, but haven’t had the time yet.
http://www.vanityfair.com/politics/features/2009/02/fannie-and-freddie200902