Sunday, December 23, 2007

SOUND OFF: BETTING THE HOUSE

As the economy has cooled in recent months, the subprime-mortgage meltdown has resulted: People who had been granted mortgages for which they likely shouldn't have qualified are finding themselves unable to make the payments on their houses and are faced with eviction.

Is it the lenders' responsibility to help keep people in their homes, because they enticed customers to take out mortgages that the lenders knew they might not be able to afford? Or should the borrowers be held solely accountable, because they entered into lending agreements that they should have realized were beyond their ability to repay?

Post your thoughts here by clicking on "comments" or "post a comment" below. Please include your name, hometown, and state, province, or country. Readers' comments may appear in an upcoming column. Or e-mail your comments to me at rightthing@nytimes.com.

Jeffrey L. Seglin, author of The Right Thing: Conscience, Profit and Personal Responsibility in Today's Business (Smith Kerr, 2006), is an associate professor at Emerson College in Boston, where he teaches writing and ethics. He is also the administrator of The Right Thing, a Web log focused on ethical issues.

Do you have ethical questions that you need answered? Send them to rightthing@nytimes.com or to "The Right Thing," The New York Times Syndicate, 500 Seventh Avenue, 8th floor, New York, NY 10018. Please remember to tell me who you are, where you're from, as well as where you read the column.

c.2007 The New York Times Syndicate (Distributed by The New York Times Syndicate)

6 comments:

Anonymous said...

How about rewarding us middle class citizens that have worked two or more jobs, lived simply, and have paid off their homes and schooling without having to have the government bail them out? Give us some energy credits and more for tax relief as a thank-you for not having some 3,000+ square foot behemoth in which to heat and cool and get mortgaged up to our eyeballs!

Steve Rhode said...

Jeffrey, it is amazing how such a simple question can have such a complicated answer.

Point 1: On one hand as consumers we expect lenders to act prudently but from the lender point of view the priorities are not to manage risk as much as it is to manage profits. With increased risk come increased and attractive profits. And if you are a lender and believe that some will pay, some won’t pay, so what, then it is easy to see why lenders chase profit over prudence.

Point 2: Don’t forget that a large number of people that are getting evicted are tenants who rented homes purchased by investors that can not afford them. While the investor winds up with negative credit, the tenant winds up on the street without a home.

Point 3: Maybe what we need is a brain wipe that the banker we assumed was on main street, the one that looked out for us as individuals and gave us the opportunities that prudent credit brought, is gone. They are replaced by corporate executives in the pursuit of profit and to please shareholders while abdicating all responsibility. You will note that no criminal charges are filed against reckless lenders. They are assumed to be penalized by lost profits rather that being held accountable by society.

Point 4: Lenders market mortgages as easy products and welcome many with open arms and view customers as friends but once people fall to the back end of the process it seems that collections looks at those former friends as liars cheats and thieves.

The irony is that in my professional life I have to fight daily with lenders to persuade them accept payments. And that is simply due to policies and processes passed down to the front lines that are about maximizing profit rather than treating customers as individuals.

Point 5: This is not a balanced equation. Lenders and borrowers are not equal. Lenders are sophisticated businesses that have carefully crafted products in their favor. Borrowers are for the most part less sophisticated financially and more trusting. Does anyone read or question all the documents at a mortgage closing?

Point 6: People still believe that if they were approved for a mortgage that meant the lender felt they could afford it. That fact might not be true at all. The lender or originator simply might have been willing to accept the risk knowing the loan was going to get diced up and passed down the pipeline.

Anonymous said...

I respectfully do question the premise that as a group, the mortgage industry "enticed" any individuals or persons as groups to enter into questionable mortgage agreements. The United States operates as a free market society (at least we still do!). Because of pressure from "do-gooder" groups, mainly made up of liberal Democrats who use every factor in their arsenal to try to make George W. Bush look bad, for months last year, the mortgage industry was chided and taken to the woodshed by these groups for not allowing persons with lesser financial means get mortgages. My own local newspaper, the Charlotte Observer, ran many "expose" type articles, showing that this minority family or that poor family was turned down for mortgages for financial reasons (proper reasons, by the way) by major mortgage lenders. Enough pressure was brought that mortgage lenders began loosening up their guidelines, feeling the pressure from these groups, thus failing to follow proper underwriting guidelines, thus ensuring that a certain segment of loans thus granted would end up not being properly repaid by the borrowers. When in the course of the changing housing market the bottom dropped out of the home buying industry, causing the lending institutions to start going back to proper lending methods, some of the borrowers who had been given loans beyond their capacity to repay started defaulting. Oh, my goodness, then, the same do-gooders who had been chastising the mortgage industry for not lending to every Tom, Dick and Harry did as do-gooders always do, they started chastising the mortgage lenders for doing the very thing they had been chastising them for originally.

So, "The Right Thing" asks the question, is it the responsibility of the mortgage industry to make it possible for the home buyers who obtained loans above their ability to repay to be given ways and means to keep their homes, or is it the responsibility of the homeowners to pay their mortgages or lose their homes? Obviously, the answer is it is the responsibility of the home owner to pay the mortgage which they agreed by contract to pay. We unfortunately live in times when persons who make foolish or unwise financial choices are pitied and pressure is being brought on the mortgage industry to allow homeowners to keep their homes under some kind of forced agreement. This is the wrong thing to do. If we continually allow persons who freely make financial decisions and then bail them out when they make foolish and unwise financial decisions, they will never learn their lessons. Again, this is a country that thankfully runs on freedom of choice in making financial decisions, and the market will take care of these types of loans and people will learn their lessons not to make foolish financial decisions in the future. Yes, some people will be unable to pay their loans and will lose their houses. This is called the result of making foolish financial decisions. There is no "good fairy" out there able to bail people out for making foolish financial decisions and for sure, the country cannot afford to bail the foolish out by taxing you and me to do it. Let the market determine what will happen.

Charlie Seng

Anonymous said...

I will weigh in on personal experience. My youngest son decided he wanted a house 2 years ago at the height of the rush. I urged him to wait. He found a condo whose owner was a broker and the brokers best friend was a lender. What we have here is 3 strikes and your out.
1. The emotional desire to own your own home.(this has been driven into us as long as I can remember. Ah the American Dream)
2. A broker who knew the young man could not afford the condo but pushed the sale anyway!
3. The lender who looked at my son's financial picture but let him buy on STATED INCOME pushed the loan thru.

In the end we have a feeding frenzy in which everyone but the broker loses. (he got his money)

I blame my son for being stubborn and not listening to my advice, the broker and lender who made a sale and loan knowing my son would not be able to make a $3,200 a month payment on a monthly take home of $2,000.00 and bonus's that could (and did) shrink.

Today my son lives with me and rents his place out for $2,000 a month paying the additonal monies. Also because the taxes were not included in the loan, he had to cough up $7,500 the first year.

I also have sister and a niece who were in the mortage business and lost their jobs due to the greedy lending companies they worked for making bad loans.

Lastly I blame the media for helping to further the home buying frenzy and now is telling us how bad it is everyday. The news media is predicting a recession, I bet they will be right.

So who's to blame? My son because he listened to people who only care about profit and the bottom line convice him he could aford something he couldn't

Mike Hart
Brea California
Orange County Register

Anonymous said...

Thank you for posing the question that I spend a lot of time thinking about.

I wish I felt more empathy for people caught in this bind but in reality I feel a lot like Anonymous who posted on 12/23 who said, "How about rewarding us middle class citizens that have worked two or more jobs, [and] lived simply."

I have held off buying into my adult years because I didn't have enough regular income to make the commitment. I watched in bemusement and then resentment as other people with fewer resources took plunges that seemed foolhardy. (Like Mr. Hart's example of a $3,200/mo mortgage for someone with $2,000/mo take-home pay.)

I think there are some cases where people really got snookered by mortgage companies, and perhaps there should be investigations of those practices if people were literally lied to. But mostly I think people are not nearly conservative enough and I find it hard to find sympathy.

No, I do not think the government should bail them out and no I don't think mortgage companies should be forced to help fix their bad decisions.

--A renter

Anonymous said...

What should government do about the "mortgage crisis"? Nothing. The taxpayer has no business bailing out the lenders (because this is part of the bailout) or the borrowers.

Lobbyists for the lenders want a bailout........so they can keep profits up. Borrowers want to keep houses/condos they couldn't afford in the first place, and in many cases homes they have little money invested in.

Buying a home involves responsibility and accountability. A bailout removes both responsibility and accountability from the equation.

And in some cases, the evicted borrower leaves after foreclosure in $40K automobiles and SUVs. They wanted it all, and wanted it now.

Bailout? No. Not last time. Not this time.......because if there is a bailout this time, there will be a next time. Count on it.

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