G
Gandalf Grey
Guest
Borrowers: Victims or Accomplices?
By Stephen Pizzo
Created Jan 3 2008 - 10:16am
Capitol One asks [1], "What's in your wallet?" Of course, they really don't
care what's in your wallet, as long as it's a Capitol One credit card -- and
only that. The less real cash in the wallet the better. That way you'll have
to use their credit card to buy the stuff they know you'd buy if only you
had the dough.
Who needs cash anyway when they'll lend it to you, at 18%. Be late on a
payment and they'll jack you ass up to 32% annual interest. (That's $320
annual interest on every $1000 owed, for the math-impaired.)
Over the past decade those offering fast, easy and expensive credit have
proliferated faster than Indian Casinos. Everyday they crowd our mail and
email inboxes with pre-approved lines of credit in the thousands of dollars.
As a result Americans now owe these plastic peddling John Gottis an average
of $8000 per household [2]. Meanwhile the American savings rate has dropped
to minus 1% [3]. Which means a shocking percentage of Americans no longer
even live paycheck to paycheck. They have to borrow before that next
paycheck.
Then there are the mortgage lenders from hell. Thanks to the Capitol Ones of
the world, all those cash-strapped Americans were still able to load up on
wide-screen TVs, all kinds of furniture, leaf blowers and surround sounds
systems, they now also "deserved" their own home to put them in.
But first lending standards that had, since the end of WW II, had made
America the homeowners capitol of the world, had to be chucked. Lenders
didn't want the herd culled down to just traditionally "qualified
borrowers." No siree, they wanted to lend to all comers.
When we bought our first home back in 1971 no bank would loan one cent more
than 80% of the appraised value of the home. That required the buyer to have
a 20% interest in the property the day the loan closed. Why? Duh!
But such rules limited the pool of borrowers that could qualify for a loan.
So the lending industry sent healthy doses of dough to Washington and got
the rules loosened, then loosened again, then again. After all, the
Republicans were in charge now, and they believed "government was the
problem." And, next to the taxman, federal banking regulations and the
regulators that enforced them, were the biggest drag on the economy of
all -- or say they said.
The first offspring of those efforts were so-called "low-doc [4]" loans. The
industry had argued that all the paperwork required before the advent of
computers was clogging up their automated systems and slowing loan fundings.
So the low documentation loan was born. Borrowers were required to provide
fewer and fewer documents supporting their contention that they could
actually afford, and are likely to repay, a loan.
Once the housing bubble began to really puff up, lenders even bristled under
the minimalist restrictions of low-doc loans. They whined about it and, once
again, Bushite banking appointees shrugged and said, "what the hell."
And so were born "No-doc [5]" loans... referred to in the lending industry
itself as "liar loans," because a borrower could claim anything and not have
to prove it. It was the lending industry's version of "don't ask, don't
tell."
The rush was on. Home sales boomed. Online applications allowed borrowers to
refinance their homes on a whim, while drunk or on the toilet. Lenders
hauled in lending fees by the billions [6].
But another limiting obstacle loomed. Once they lent to finance a home
purchase, lenders could no longer actively milk that borrower. That's when
lenders decided that the old "home improvement" loan needed some modernizing
as well. In the "stupid old days" lenders required that borrowers use home
improvement loan money on -- are you sitting down? -- home improvements.
That way if the borrower defaulted the lender would have security for their
loan in the form of capital improvements.
That limitation had become a roadblock, keeping lenders from tapping into
the rising value of homes already owner occupied. So the home improvement
loan was killed off and replaced by the "home equity loan." That put lenders
were in the ATM business, encouraging homeowners to tap what equity appeared
in their home to purchase whatever they felt entitled to; cars, boats, more
TVs, vacations... spare the lender the details. The lender didn't care.
So the old-fashioned American dream morphed before our eyes into a frenzied
binge of lend & spend, lend & spend, lend and spend. What our parents would
have called a "spend-thrift" lifestyle, Republicans pointed to as proof "the
American economy is on a roll."
But rolling to where? Anyone with a measurable IQ could tell that it wasn't
a sustainable path. It was something more recognizable as ski jump, than a
highway. Tallyho! Sooner or later borrowers were going owe more than they
were capable of repaying. Or the underlying assets securing those property
loans would decline in value, becoming worth less than the amounts owed. Or,
more likely, both things would happen. And now they have.
Just yesterday I was reading one of the many sob-story articles that are
popping up all of a sudden, bemoaning the fate of America's debt-ridden
consumers. This article told of a couple that still owed $9500 on their SUV,
but really, really, really wanted a new big-cab pickup.
And, surprise, surprise, they found a Dodge dealer more than willing to help
them have it their way. Yes, they drove home in their new truck and the
helpful dealer and sub-prime lender arranged the whole thing. They simply
took the SUV in trade and added the $9500 the couple still owed on it to
their new 7-year loan.
Now the couple was now having trouble making the payments on their new
$45,000 auto loan.
How am I supposed to feel about that couple? Sorry? Forget about it. The
lender, dealer and their numb-nuts victims deserve one another. The lender
deserves to take the loss of a repossession, and the couple deserves to lose
their shinny new, gas guzzling big-cab pickup. Darwinism demands a price for
stupidity.
The same goes for the folks who bought homes with 100% financing -teaser
rated- negative-amortized- adjustable-later- double-mocha-
double-sugar-moron home loans. Had those people developed even a passing
relationship with a pocket calculator they would have known better. So, back
to being renters.
And to all those homeowners that decided it was smart to scratch every
life-style itch with equity from their domicile residence, a pox on them
too. Their parents and grandparents generations had mortgage burning parties
the day they made their final home loan payment. They were smart. Too many
of their offspring somehow did not get those genes. Instead of paying down
their mortgages they increased them, then spent the money on wasting
"assets." Why die with a positive bank balance when you can go out soaked in
red ink. Heirs? Let-em eat cake.
Then there's America's lenders. If I were a prosecutor I'd have a great
circumstantial case proving that, even as lenders were pushing loans, they
knew better than to hold them themselves. Someone was going to get the
mother of all screwings, and they didn't want it to be them.
Which is why they "securitized" those loans. They bundled up thousands of
loans into packages, mixing in the good, the bad and the ugly, and sold them
to investors in heat for higher returns.
Of course those investors should been a little suspicious of the lenders,
"take our loans, please," offer. They should have done their due diligence.
Instead they couldn't see -- or didn't want to see -- past the high returns.
Anyway, they figured, what could possibly go wrong with America's housing
market? (You see, in the credit world the list of suckers is not limited to
just the borrowers.)
As for those lenders that filled our TV screens with ads peddling pure,
unadulterated fiscal crack, let them to die -- let them die slowly,
painfully and publicly. Let their shareholders sue and then scramble among
lending company bones for what pocket change remains.
Lenders, borrowers, investors... I haven't an ounce of sympathy any of them.
Borrowers should have done the math, and if they couldn't do simply adding,
subtracting, division and multiplication, they were likely unqualified for
the loan(s) they got in the first place.
Lenders should have stuck to tried and true lending standards. Instead they
embraced a self-serving, "consumers are asking for it spending like that,"
philosophy. Once respected lenders, like Countrywide,
devolved into the equivalent of child molesters: "Hey there little girl,
want a nice teaser rate?"
(An Aside: Now that the mortgage markets are in free fall, lenders have
found two new pigeons to roast: students and the elderly. Which is why those
"refinance your house," ads have been replaced by ads touting student loans
[7] and so-called reverse mortgages [8].)
All of which answers the question posed above. They were co-conspirators -
one and all. The New Year will see them all singing a new tune. No longer is
it, "Happy Days Are Here Again." The new song is more like;
"Bad loan, bad loans -- whatschya gonna do,
whatschya gonna do when they come for you?
Band loan, bad loans..."
_______
newsforreal.com
--
NOTICE: This post contains copyrighted material the use of which has not
always been authorized by the copyright owner. I am making such material
available to advance understanding of
political, human rights, democracy, scientific, and social justice issues. I
believe this constitutes a 'fair use' of such copyrighted material as
provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107
"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson
By Stephen Pizzo
Created Jan 3 2008 - 10:16am
Capitol One asks [1], "What's in your wallet?" Of course, they really don't
care what's in your wallet, as long as it's a Capitol One credit card -- and
only that. The less real cash in the wallet the better. That way you'll have
to use their credit card to buy the stuff they know you'd buy if only you
had the dough.
Who needs cash anyway when they'll lend it to you, at 18%. Be late on a
payment and they'll jack you ass up to 32% annual interest. (That's $320
annual interest on every $1000 owed, for the math-impaired.)
Over the past decade those offering fast, easy and expensive credit have
proliferated faster than Indian Casinos. Everyday they crowd our mail and
email inboxes with pre-approved lines of credit in the thousands of dollars.
As a result Americans now owe these plastic peddling John Gottis an average
of $8000 per household [2]. Meanwhile the American savings rate has dropped
to minus 1% [3]. Which means a shocking percentage of Americans no longer
even live paycheck to paycheck. They have to borrow before that next
paycheck.
Then there are the mortgage lenders from hell. Thanks to the Capitol Ones of
the world, all those cash-strapped Americans were still able to load up on
wide-screen TVs, all kinds of furniture, leaf blowers and surround sounds
systems, they now also "deserved" their own home to put them in.
But first lending standards that had, since the end of WW II, had made
America the homeowners capitol of the world, had to be chucked. Lenders
didn't want the herd culled down to just traditionally "qualified
borrowers." No siree, they wanted to lend to all comers.
When we bought our first home back in 1971 no bank would loan one cent more
than 80% of the appraised value of the home. That required the buyer to have
a 20% interest in the property the day the loan closed. Why? Duh!
But such rules limited the pool of borrowers that could qualify for a loan.
So the lending industry sent healthy doses of dough to Washington and got
the rules loosened, then loosened again, then again. After all, the
Republicans were in charge now, and they believed "government was the
problem." And, next to the taxman, federal banking regulations and the
regulators that enforced them, were the biggest drag on the economy of
all -- or say they said.
The first offspring of those efforts were so-called "low-doc [4]" loans. The
industry had argued that all the paperwork required before the advent of
computers was clogging up their automated systems and slowing loan fundings.
So the low documentation loan was born. Borrowers were required to provide
fewer and fewer documents supporting their contention that they could
actually afford, and are likely to repay, a loan.
Once the housing bubble began to really puff up, lenders even bristled under
the minimalist restrictions of low-doc loans. They whined about it and, once
again, Bushite banking appointees shrugged and said, "what the hell."
And so were born "No-doc [5]" loans... referred to in the lending industry
itself as "liar loans," because a borrower could claim anything and not have
to prove it. It was the lending industry's version of "don't ask, don't
tell."
The rush was on. Home sales boomed. Online applications allowed borrowers to
refinance their homes on a whim, while drunk or on the toilet. Lenders
hauled in lending fees by the billions [6].
But another limiting obstacle loomed. Once they lent to finance a home
purchase, lenders could no longer actively milk that borrower. That's when
lenders decided that the old "home improvement" loan needed some modernizing
as well. In the "stupid old days" lenders required that borrowers use home
improvement loan money on -- are you sitting down? -- home improvements.
That way if the borrower defaulted the lender would have security for their
loan in the form of capital improvements.
That limitation had become a roadblock, keeping lenders from tapping into
the rising value of homes already owner occupied. So the home improvement
loan was killed off and replaced by the "home equity loan." That put lenders
were in the ATM business, encouraging homeowners to tap what equity appeared
in their home to purchase whatever they felt entitled to; cars, boats, more
TVs, vacations... spare the lender the details. The lender didn't care.
So the old-fashioned American dream morphed before our eyes into a frenzied
binge of lend & spend, lend & spend, lend and spend. What our parents would
have called a "spend-thrift" lifestyle, Republicans pointed to as proof "the
American economy is on a roll."
But rolling to where? Anyone with a measurable IQ could tell that it wasn't
a sustainable path. It was something more recognizable as ski jump, than a
highway. Tallyho! Sooner or later borrowers were going owe more than they
were capable of repaying. Or the underlying assets securing those property
loans would decline in value, becoming worth less than the amounts owed. Or,
more likely, both things would happen. And now they have.
Just yesterday I was reading one of the many sob-story articles that are
popping up all of a sudden, bemoaning the fate of America's debt-ridden
consumers. This article told of a couple that still owed $9500 on their SUV,
but really, really, really wanted a new big-cab pickup.
And, surprise, surprise, they found a Dodge dealer more than willing to help
them have it their way. Yes, they drove home in their new truck and the
helpful dealer and sub-prime lender arranged the whole thing. They simply
took the SUV in trade and added the $9500 the couple still owed on it to
their new 7-year loan.
Now the couple was now having trouble making the payments on their new
$45,000 auto loan.
How am I supposed to feel about that couple? Sorry? Forget about it. The
lender, dealer and their numb-nuts victims deserve one another. The lender
deserves to take the loss of a repossession, and the couple deserves to lose
their shinny new, gas guzzling big-cab pickup. Darwinism demands a price for
stupidity.
The same goes for the folks who bought homes with 100% financing -teaser
rated- negative-amortized- adjustable-later- double-mocha-
double-sugar-moron home loans. Had those people developed even a passing
relationship with a pocket calculator they would have known better. So, back
to being renters.
And to all those homeowners that decided it was smart to scratch every
life-style itch with equity from their domicile residence, a pox on them
too. Their parents and grandparents generations had mortgage burning parties
the day they made their final home loan payment. They were smart. Too many
of their offspring somehow did not get those genes. Instead of paying down
their mortgages they increased them, then spent the money on wasting
"assets." Why die with a positive bank balance when you can go out soaked in
red ink. Heirs? Let-em eat cake.
Then there's America's lenders. If I were a prosecutor I'd have a great
circumstantial case proving that, even as lenders were pushing loans, they
knew better than to hold them themselves. Someone was going to get the
mother of all screwings, and they didn't want it to be them.
Which is why they "securitized" those loans. They bundled up thousands of
loans into packages, mixing in the good, the bad and the ugly, and sold them
to investors in heat for higher returns.
Of course those investors should been a little suspicious of the lenders,
"take our loans, please," offer. They should have done their due diligence.
Instead they couldn't see -- or didn't want to see -- past the high returns.
Anyway, they figured, what could possibly go wrong with America's housing
market? (You see, in the credit world the list of suckers is not limited to
just the borrowers.)
As for those lenders that filled our TV screens with ads peddling pure,
unadulterated fiscal crack, let them to die -- let them die slowly,
painfully and publicly. Let their shareholders sue and then scramble among
lending company bones for what pocket change remains.
Lenders, borrowers, investors... I haven't an ounce of sympathy any of them.
Borrowers should have done the math, and if they couldn't do simply adding,
subtracting, division and multiplication, they were likely unqualified for
the loan(s) they got in the first place.
Lenders should have stuck to tried and true lending standards. Instead they
embraced a self-serving, "consumers are asking for it spending like that,"
philosophy. Once respected lenders, like Countrywide,
devolved into the equivalent of child molesters: "Hey there little girl,
want a nice teaser rate?"
(An Aside: Now that the mortgage markets are in free fall, lenders have
found two new pigeons to roast: students and the elderly. Which is why those
"refinance your house," ads have been replaced by ads touting student loans
[7] and so-called reverse mortgages [8].)
All of which answers the question posed above. They were co-conspirators -
one and all. The New Year will see them all singing a new tune. No longer is
it, "Happy Days Are Here Again." The new song is more like;
"Bad loan, bad loans -- whatschya gonna do,
whatschya gonna do when they come for you?
Band loan, bad loans..."
_______
newsforreal.com
--
NOTICE: This post contains copyrighted material the use of which has not
always been authorized by the copyright owner. I am making such material
available to advance understanding of
political, human rights, democracy, scientific, and social justice issues. I
believe this constitutes a 'fair use' of such copyrighted material as
provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107
"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson