A few years ago just about any adult who was still breathing could get a mortgage. It was a time when many folks who had always dreamed of buying a home could do just that. It was also a time when folks who had a bit of equity in their homes could borrow against it, and they did.
The new homebuyers were excited about latching onto this aspect of the American Dream. The then-homeowners were excited about getting out of debt by paying off their maxed-out credit cards and blowing the rest of the windfall from their home equity loans on whatever. Mortgage brokers were excited because they could make an average month's income on one borrower with less than stellar credit by charging outrageous origination fees. Lending institutions were excited because they were putting on the greatest sale of the century -- money at rates that the least of us could afford, that is, until that "introductory rate" expired and the cost of borrowing that money began to increase.
During that time title companies were clamoring for "signing agents" to conduct mortgage signings in borrowers' homes or wherever they wanted to sign. Notaries public were clamoring for these juicy assignments that would pay as much as $200 a pop. The notary's job was to identify the documents and secure the borrowers' signatures. Many skipped past the identifying part and went straight to the "sign here" part. A fast-moving notary could say "sign here" a couple of dozen times while turning 135+ pages in about 15 minutes. It was nothing for a notary signing agent to do ten of those on any given day. And at the end of the day, the notary public would turn each page again, signing and applying his/he notarial seal, stuff the documents in an envelope and make a beeline to the nearest FEDEX depository. Can you do the math? Even at a modest $100 per transaction, that's still $1,000 a day.
Among the documents in those mortgage packages is one that advises the borrower what percentage of loans the lender serviced. The vast majority of those disclosures showed that the lender did not service any mortgages, meaning that the mortgage would definitely be sold.
Many of these mortgages were then bundled and sold. Everybody in on the original transaction would get paid. By purchasing the bundled mortgages, those up the food chain allowed the original lenders to free up money to make more loans. Those farther up the food chain were salivating over those adjustable rate mortgages -- they stood to make a bundle from the bundles. And where would all those $$$$ come from? The increased interest rates on those mortgages. The rate increases would be so onerous that many mortgagors could not afford the monthly payments. And then what? They would miss one month, then two or more, then foreclosure.
And what about those home equity loans? Sometimes borrowers would pay off their credit card debts. Sometimes they would blow the wad. Sometimes they would do both. Many times, after the credit card accounts had zero balances, those borrowers would start shopping again -- and charging their purchases. The same thing that happened to homebuyers happened to homequity borrowers: The rate increases would become so onerous that many mortgagors could not afford the monthly payments. And then what? They would miss one month, then two or more, then foreclosure.
So whose fault is it? The borrowers who aspired to own their homes? The mortgage brokers who gouged borrowers with unnecessarily high origination fees? The mortgage brokers who made verbal representations on which the borrowers relied, when the transactional documents reflected something totally different? The lenders who set interest rates that would become impossible to afford? Whatever governmental entities allows the use of transactional documents that the average person cannot understand? For an answer, how about all of the above?
- The borrowers who aspired to own their homes should have made sure they bought a house (or homequity loan) that they could afford. They should have made sure they understood the terms of their mortages -- especially the parts about payments. Ignorance is not bliss.
- The mortgage brokers who were allowed to charge excessive fees were just greedy predators. Of course, many of them are no longer in business. Some of them, after losing their businesses, lost their own homes to foreclosure. What goes around . . . comes around.
- The mortgage brokers who represented that loans had particular terms that were not reflected in the documents were relying on the ignorance of the borrowers. Greedy mortgage brokers. Shame on them.
- The lenders who set rates that either contemplated increases in income (the days of automatic raises are in the distant past) and/or home values. Interest rates tend to increase more often than they decrease. An increased interest rate means an increased mortgage payment, meaning more and more of the borrower's income would be allocated to the mortgage, never allowing the borrower to have extra money to reduce other debts or even save. Greedy lenders. Shame on the lenders.
- The investors. Do they really need to make a killing? Can't a reasonable rate of return suffice? Greedy investors. Shame on them.
Who's making the killing now?
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