Do We Need Mortgage Angels? Nah, Just Some Ethics and Personal Responsibility!
Who caused the mortgage crisis? How do we rescue the people who are in danger of losing their homes? I believe you can address both these by forcing some old time lending practices.
I can tell you who caused the mortgage crisis, or better yet, how it was caused. In the movie ” Its a Wonderful Life”, George Bailey cannot give his depositers all their money when they want to withdraw it in the banking crisis since he had loaned this money to fellow depositers for their homes, farms, business’, etc. He had used the money deposited in his bank to help improve his community and the lives of the people in it, at a profit to which he was entitled, as was the common practice of those times.
Fast forward to 2007, the most common practice was for a mortgage broker to fine tune your application, then” shop it ” to several banks for approval. Once your loan was approved and you closed on the property, the mortgage broker was paid his fee, anywhere from 1% to 2.5% His job was over, he had no responsiblity for your loan whatsoever. The mortgage was then sold to other banks, companies, investors, even packaged as mortgaged backed bonds and sold to mutual funds, hedge funds, even pension plans. Some of the more savvy investors even took insurance out against possible default of a certain percentage of the loans. All of this was done based on the mistaken impression that someone did due diligence. Ok, the mortgage broker was paid his fee and the bank has sold the loan and been repaid, at a profit of course. So, who really cares if this loan goes bad or even if the borrower was a good risk? George Bailey is dead, and so are ethical lending practices!
The system of loan origination is broken. If the mortgage broker had to refund the fee he received for your loan if you didn’t make your payments on time, he would be darn sure you could afford the payments! We need a ” mortgage broker guarantee ” form. Hey, you sign enough forms at a house closing, what is one more. Let him get his fee, but the bank he is working for should pay him over the first five years for the loan, not at the closing. If you make your mortgage payments, the broker gets all his money. Let’s see some long term responsibility!
And let’s not forget the bank, they should have their name permanently attached to this loan and they should have to provide a guarantee to the buyer if this loan is sold. So, if the borrower defaults, the holder of the note can go back to the original bank to collect. Wow, that would make a lot of banks nervous!
Ok, how does this help todays poor soul with a home he cannot afford and now can’t even sell it to cover the loan he took? I think the federal government needs to come up with a rescue plan for these people through the banks. If a bank decides to restructure a loan for a borrower and help him pay it off at terms he can afford, the bank should be able to deduct the lost interest from their taxes, like a direct credit. Give them good, financial reasons for helping people while you come up with laws to force more ethical lending practices. This will ease the problem away from crisis mode and pave the way for future good home loans.
Hey, that’s just my nickel.
January 19th, 2008 at 8:06 am
Please keep these excellent posts coming
January 21st, 2008 at 3:54 pm
Interesting opinion on this troubling subject.
February 8th, 2008 at 9:44 am
I couldn’t understand some parts of this article Do We Need Mortgage Angels? Nah, Just Some Ethics and Personal Responsibility!, but I guess I just need to check some more resources regarding this, because it sounds interesting.