Who is really to blame about the mortgage mess?

I never hear anyone blame the realtor for showing buyers homes they know they can't afford. So many times i hear that it is the mortgage banker fault (which some of it is) but never on anyone else.Who is really to blame about the mortgage mess?
Those who study mortgage trends have said that there has been a pretty consistent pattern of a ';bust'; in mortgages about every 18 years since World War II. We've seen problems like this before and we will survive this ';crisis.'; If you're looking for a mortgage right now, rates are still very good. The world is not ending (as the politicians who are itching to ';help'; would have us believe).





Now to your question... In summary, EVERYONE involved played a part in the ';mortgage mess'; to some extent or another.





BORROWERS -- Rather than living within their means, many borrowers decided that they wanted to have a bigger, more expensive house than they could afford. In order to afford these houses, they often turned to loan products such as ';Interest Only'; loans. With IO loans, you basically pay the minimum amount possible every month and the principal is never reduced. To complicate matters, some loans featured ';zero down'; where the borrower had absolutely NO equity in the property. Here is an illustration of a typical problem: A property is worth $800,000 at the time of purchase. The borrower takes out an Interest Only loan for $800,000 (putting nothing down). Then the property value drops to $700,000. Now the borrower has a loan for $800,000 for a property that is only worth $700,000. The borrower has ZERO equity in the property so guess what... they walk away from the property and the lender ends up taking the loss.





MORTGAGE COMPANIES (BAD OR POOR UNDERWRITING GUIDELINES) -- In an effort to make as many loans as possible (and to sell these loans to foolishly eager investors), many mortgage companies relaxed their guidelines beyond reason. Some loans had a Loan-to-Value (LTV) ratio of 100 (or higher on rare occasion!). If the property was worth $100,000, then an LTV meant that $100,000 was loaned to the borrower (as stated before, no equity). The lower the LTV, the less risky (and more desirable) the loan is. Another arguably stupid mortgage product was the ';80-20'; loan. A loan with an LTV of 80 or lower is not considered risky in the mortgage business. Therefore, Mortgage Insurance (MI) is not required for loans with an LTV of 80% or less. (If a borrower has an LTV of 85 and pays it down to 80, then they can drop the MI from the loan.) MI is basically insurance against borrower default. For example, if a borrower defaults on his loan and the lender forecloses and sells the property and loses $2000 in the process, then the MI company will cut a check to the lender for $2000 to make the lender ';whole.'; Rather than requiring borrowers to carry MI on their loans (which would have mitigated risk), the mortgage companies allowed the borrowers to take out a second loan on the same property (a ';second lien'; or Home Equity Line of Credit or HELOC). This HELOC money was then used as the ';money down'; on the first loan so that MI could be avoided. For example, if the property is worth $100,000, the borrower might get a HELOC for $20,000 and put that money down on the first loan, thereby lowering the LTV to 80 (thereby exempting them from MI). Another popular loan was an Adjustable Rate Mortgage (ARM) or ';Fixed-Adjustable'; (where the Interest Rate is fixed for a few years and then starts to adjust (up or down) based on a financial instrument). Borrowers were allegedly given a low ';teaser rate'; and then (because they bought too much house) couldn't make the payments with the higher interest rate when the rate adjusted. (It seems hard for me to believe that an interest rate adjustment would be so severe that it would prevent someone from making their payments, but that's what the borrowers allegedly claim.) Maybe this is too many detailed examples, but suffice it to say that a lot of stupid mortgage products were offered by mortgage companies (and accepted by borrowers).





INVESTORS -- In their quest to make a ';fast buck';, investors bought up tons of these mortgages since these riskier ';sub-prime'; loans brought higher returns (higher interest rates). These investors should have performed a ';due diligence'; on the loans they bought; but they didn't. When investors purchase loans, there is usually (if not always) a ';buyback'; provision. This means that if a loan goes bad and the investor finds that there was some irregularity in the underwriting (the loan decisioning process) that the mortgage company who sold them the loan is required to ';buy back'; the loan. The problem is that most mortgage companies are ';cash poor'; (meaning that they borrow the cash that they lend from a ';warehouse lender'; temporarily until they can sell the loan to an investor and pay back their warehouse lender). So when these loans started going bad (hundreds of millions of dollars worth!), the investors demanded the mortgage companies buy back the loans (according to their agreement). So mortgage companies were now looking at buying millions and millions of dollars worth of loans back when they had little or no money of their own! So what happened? Countless mortgage companies declared bankruptcy. With all of the hullaballoo around bad mortgages, investors decided to stop buying sub-prime mortgages. Since there was nobody buying these mortgages and since mortgage companies don't have their own cash, mortgage companies found that they could no longer make these sub-prime loans. The sub-prime market dried up almost instantly.





RATING AGENCIES -- The job of rating agencies is to investigate the creditworthiness of investments (many of which included mortgage debt). These agencies did not do their due diligence and ended up giving these investments an artificially high rating. So investors thought the investments were less risky than they were. Investors will always buy investments that have a high return and low risk (but obviously they weren't low risk).





THE GOVERNMENT -- The government has always put pressure on mortgage companies to make loans to poor and/or minority borrowers. Because these borrowers typically have worse credit and/or less income and/or greater debt, they had to go to the ';sub-prime'; market to get a mortgage loan. Is it so hard to imagine that a borrower with less income, more debt and bad payment habits will default on a loan (especially when they've put little or no money down)? Of course not. But the government continues to ';wish away'; laws of basic economics and common sense. In order to ';do right'; by poor people and minorities, the government expected mortgage companies suspend their normal sound underwriting guidelines and business sense. (Obviously, the sub-prime problem goes beyond just poor borrowers, but my point is that the government contributed to the crisis to some extent.) The government is now poised and ready to exacerbate the crisis beyond what it is now by ';freezing'; interest rate adjustments. Here is an illustration of the problem: Let's say you have $5000 in cash. I'm a bank and I tell you that if you deposit your $5000 with me that I will pay you 1% during the first 2 years but then I will pay you 7% after those 2 years. So you deposit your money at the low rate of interest. After two years (when you're about to get your higher interest rate), the government comes in and says, ';Sorry. You're not getting your 7% as promised. In fact, you can't take your money out of that bank; you must leave it there and only collect 1% for another 10 years.'; What will happen when you have another $5000 to deposit? Will you put it in my bank? Absolutely not. Why? Because you don't know if you'll really get the return you agreed upon. In the same way, if the government steps in and says to the investor/lender, ';Sorry... you're not getting the return on your money that you negotiated... and you can't take back your money; you've got to leave it at the low rate,'; then guess what the investor is going to do. He will never invest in mortgages again! He will take his money to China or municipal bonds or any other vehicle in which he can get a RELIABLE return on his money. If he DOES decide to put money into mortgage debt again, he will demand a higher return to compensate for the greater risk that the government will step in and ';help'; again. (In other words, Interest Rates on mortgages will go up for EVERYONE!) Thank you Big Government Democrats and George Bush!





REGIONAL PROBLEMS -- Some regions in the USA had events that made the mortgage problems particularly bad. For example, inflated property values in California started deflating. Condos in Florida didn't sell as thought and many sit vacant. Companies providing jobs in the ';rust belt'; (such as Michigan) have moved or gone under; thereby leaving the local homeowners with no income with which to make their mortgage payments.





Sorry for such a long answer. Hope it all makes sense.





Thanks!Who is really to blame about the mortgage mess?
If you buy a home the price you pay is up to you. Nobody forces anyone to pay more than they can afford.It is a good idea to Budget and see how much you can afford as a mortgage payment and then add 10% to allow for contingencies such as recession Etc.It appears to be a Worldwide problem at the moment.We went through the same thing in the Eighties and it was hard, we went without just to pay our mortgage and it lasted for a few years.Boy did we go out when it finished.
Well if the broker shows a buyer a home they can't afford, who is the idiot buying that house? A lot of people WANT to be homeowners, but they make poor choices and shouldn't be home owners, and won't be for long. Wanting is not enough. One needs to pay your bills, not run up credit card balances, not have bad credit, etc. To be harsh, they didn't deserve to be home owners, shouldn't have qualified for loans, and didn't have enough sense to capitalize on this chance at home ownership. The lenders were ignoring underwriting, and just processing paper and giving loans to totally unqualified buyers, bundling lots of these loans together and selling them and reselling them. People bought these securities without investigating/discovering how shaky the underwriting was. Stockbrokers didn't care, and sold these shaky securities. The loan brokers and stockbrokers all made money by selling and selling. Now the new home owners are losing their homes and the entire economy is suffering.
I believe it's the fault of the buyer. Whoever in their right mind will buy a house that they ...should know, is way out of their price range. Who in their right mind will buy a home with an 'interest only' mortgage? Who in their right mind will buy a home with a rate that isn't fixed?





They all asked for the trouble they are in by not buying what they could afford.
It is really the banks fault for giving every Joe Walmart a loan.


The banks think that everyone will try to maintain a decent credit score so they have no problem giving people that have no business purchasing a home a loan.


Anyone that doesn't have a stable career doesn't need to get a mortgage.


When Joe Walmart gets fired he is not scared that the home will foreclose on him and he probably doesn't know what a credit score is. He packs his bags moves in with his cousin and works at the bait shop.


Banks don't like this and rates go up with a couple other variables but basically thats it.
The economy is a big part of it,but in todays society every buys today and pays tommorow. It been this way for years but now people are going into foreclosure because everyone else is and its an easy way out of debt.
Realtors have a minor amount of blame. They knowingly put borrowers into loans that REQUIRED fraud.





The real blame isn't with brokers at all rather with Mortgage Bankers (most of whom have already failed), with bond traders and with hedge funds. The appetite for the paper was so great that bond traders were essentially forcing Lenders (mortgage bankers and banks in some cases) to focus on saleability rather than on the borrowers ability to pay.





Saleability means the ability of the mortgage banker to sell the loan to the secondary markets.





The level of fraud is far beyond what the consumer is being told. The fraud was institutionalized at most levels of many lender. Ultimately the greatest level of fraud was committed Account Executives and managers-under orders from sales managers.
Its not the realtor's place to determine affordability. That's up to the buyer and the lender.
The Realtor would have no idea the person can't afford the house. They don't go through the buyer's financials nor do they ask them about their income or their bills. The mortgage broker does that.





The fault lies with the mortgage brokers, for approving people to finance levels that they know they couldn't afford, and the buyers who bought something that they SHOULD have known they couldn't afford. Unfortunately, since most Americans are stupid and think they can buy ANYTHING on credit, I guess I mostly blame the mortgage bankers.
It's not a matter of blaming any one person. We are all to blame. We all wanted more and more money for our properties.





As for the Realtor, the loan officers would be more to blame for putting these folks into loans that adjusted upward and outside of their ability to pay. Realtors really facilitate the part of the process, the real culprit was the loan companies.





Not consider this tho, they were also pressured by the Federal Government to come up with ways to make housing more affordable. The Fed step in, then they step out, then they step making everyone believe they are going to save the day, when they are just as much a part of this mess as the lenders.
I have no sympathy for these people who are loosing their homes. They took a chance (like gambling), that their rates wouldn't rise. They lost their gamble and people like me, who decided to go with a higher fixed rate, are the ones who have to bail them out. People really need to take responsibility for their own decisions...and not blame the lendng institutions.
Banks/lenders: for allowing closing and down payment to be rolled into the loan, now you have a house that on paper costs more then it actually is worth which causes more problems when they try to sell it due to not being able to sell for the cost of the purchase.


Appraisers: for over appraising property allowing people to get a loan for a home that is not worth what they are paying... see above.


Realtors: Realtors stick together. They make commission so if it's a buyer representative, they aren't necessarily looking to get the buyer a great deal, they are looking to get their commission. So in reality they are working with the sellers agent to ensure a high sell which can leave a sellers home on the market for to long, leading buyers to believe something is wrong with the home and unable to negotiate the prices more in their favor.


Buyers: For not sticking to their guns on a lower price for the home. For not knowing all they should know prior to purchasing a home, such as the above and their state real estate laws, etc.


Government: for not passing better consumer protection laws/regulations.


Statutes: for not passing better consumer protection laws.


Attorneys: for charging way to much money just to go over a real estate contract and give some good legal advice.


People in general: for not complaining more to the authority having jurisdiction when about the above things or to their state real estate commission for agents who behave badly.





EVERYONE SHOULD BE AWARE OF THE LAWS AND MAKE COMPLAINTS WHEN PEOPLE (REALTORS, LENDERS ETC.) DON'T FOLLOW THEM. IT'S THE ONLY WAY ANYONE WILL EVER KNOW WHAT IS HAPPENING. I COMPLAINED ABOUT MY AGENTS PRACTICES TO THE STATE REAL ESTATE COMMISSION AND AFTER FOUR MONTHS THE INVESTIGATION IS CONTINUING. I HAD THE OPTION OF GETTING MY INSPECTION MONEY RETURNED $350 FROM THE COMMISSION BUT THAT IS JUST THE START. THE REALTOR MAY LOSE HIS/HER LICENSE.
The people to blame are the ones who bought more house than they could afford. They knew, getting into it, that they would be paying too much, and wouldn't be able to afford it after the ARM expired.





I get so tired of everyone blaming someone else. Those who bought a house that they couldn't afford should wake up and accept responsibility for their own choices.