Interesting but confusing link to an article about economic collapse

[EthanAllen]

Sub-prime lending didn't have the same regulatory controls in place. Higher risks, higher rewards.

Which means people who couldn't afford a house ended up getting one. A now that house will be taken away. Sounds like the market normalizing itself. What's wrong with that?

There is had been an enormous amount of pressure to act illegally in the mortgage business. Defrauding either the lender or the borrower is morally wrong.

[Lex]

You mean like if an automaker says that their cars are safe but when you drive your car into a concrete wall at 100mph your car is totaled and you are wondering why the car company deceieved you and told you the car was safe?

No.  But if the auto maker claims that their car will protect the occupants inside during a head-on collision at 10 mph, I expect it to do just that.  If I then get in a head-on collision at 10 mph and someone is paralyzed during the process, then I expect the auto maker to be accountable. 

Good point. And I'm not arguing that part of it. But what I'm seeing is that people are buying cars guaranteed to keep you safe at a 10mph crash but the reality is that very few roads have 10mph speed limits and very few people drive 10mph in general. Is it deceptive for car companies to say that their cars are safe at 10mph or maybe just redundant?

When a mortgage company says they can give you a $700 a month loan payment, it's essentially the same thing. If you have the right credit rating, a loan of a certain amount, etc, then you will get it at $700 per month, but most people don't exactly match those qualifiers so they won't get the $700 a month loan payment.

[Lex]

Very true.  I think it's sad to just accept the fact that you are going to be deceived when making the biggest purchase of your life though.  Instead of accepting that fact, I suggest weeding out the dishonest lenders and holding them accountable. 

Isn't that the irony though. People know everything about American Idol and yet the thing that will impact their lives the most and affect their pocket book the most they know so little about.

I find it hard to feel sorry for these people. It's because of them that will have an economic collapse. Their spending/debt decisions encouraged recklessness in the mortgage industry. Because after all, if there is a demand someone will meet it no matter the negative consequences.

[error]

For someone like my girlfriend and I, we're not worried.  We're intelligent, cautious, and very knowledgeable about business matters.  The thing I have an issue with is lenders practicing false advertising . . . "Stop renting! You can own your own home for as little as $700 per month!"  Now, I know that buyers should be smarter and I put the majority of the responsibility on their shoulders . . . but some lenders' practices go beyond "sneaky" and venture into the "criminal" territory.  Telling someone they can own a house for $700 / month without telling them that their mortgage will jump to $1500 / month after 2 years is criminal to me. 

It's "sneaky," but it's hardly "false advertising" or "criminal." It's right there in the contract! Anyone who signed a contract without reading and understanding it first is going to get what he deserves.

I sat back a few years ago and watched lenders go absolutely hog wild lending money out. I knew that anybody who would get, say, an "interest-only" loan, or one of these crazy adjustable rate mortgages, was out of their gourd. I can't do much blaming of the lenders. After all, it takes two to tango.

[alohamonkey]

It's "sneaky," but it's hardly "false advertising" or "criminal." It's right there in the contract! Anyone who signed a contract without reading and understanding it first is going to get what he deserves.

You're right.  It's in the contract.  But I've been to hundreds of closings and I have never been to one where the buyer was able to read the fine print of every single document.  The stacks of paper are usually at least 3 inches thick.  The process is so encumbered by legal speak that only lawyers can decipher most of it.  And . . . last minute documents are almost always presented at the closing to be signed.  At some point, the buyer (myself included), has to put some amount of trust in their lender and title agency that what they are being told is actually what is detailed on the contract. 

I sat back a few years ago and watched lenders go absolutely hog wild lending money out. I knew that anybody who would get, say, an "interest-only" loan, or one of these crazy adjustable rate mortgages, was out of their gourd. I can't do much blaming of the lenders. After all, it takes two to tango.

I agree with you on the "interest-only" loans.  And I was amazed to see how many people took out 100+% loans.  Come on . . . you've got to know something's up if a bank is paying you to buy a house.  Adjustables aren't entirely bad . . . I've got a 4.25% rate for five years.  Should give me just enough time to find something out in the woods with a few turbines and solar panels 

Anyways . . . I've sort of hijacked this thread.  I don't think the economic collapse is entirely the mortgage lending industry's fault.  I think they played a part with deceptive practices by targeting customers who they know would never be able to perform on their loans.  Just because they can convince them to take out a mortgage doesn't make it ethically right . . . to me.  At the same time, I think there are a lot of idiots out there who think they can get something for nothing . . . or even, they can get a company to pay them to buy a house. 

[error]

Why the hell are there 3 inch stacks of paper involved in buying a house?

[KBCraig]

Why the hell are there 3 inch stacks of paper involved in buying a house?

Lender. Government. Real estate agent (seller). Real estate agent (buyer). Title company. Escrow company. Insurance company. Seller. Buyer. Lawyers for all of the above. Take your pick: they all have a pile of papers to sign, and I'll wager the vast majority of buyers are completely bewildered, and "just sign here" over and over until the pile is finished.

I was reasonably cautious and made inquiries where I was uncertain, but when I bought this house, all parties met at the title company, and the "just a quick process!" took about three hours of explaining, signing, explaining, signing, repeat ad nauseum. And my occasional inquiries didn't noticeably delay the process: there was a table full of people who do this for a living, reciting the drill procedure for a couple who had never done this before.

I didn't measure the stack. But three inches seems reasonable.

[dalebert]

Adjustables aren't entirely bad . . . I've got a 4.25% rate for five years.  Should give me just enough time to find something out in the woods with a few turbines and solar panels 

I bought my condo in L.A. with a 5/1 ARM (fixed for five years, adjustable each year thereafter) on the idea that I didn't want to live there more than about 5 years anyway. It was meant to be a starter home for me. In the off chance that I did live there longer, I knew exactly how fast the rate could rise and what the upper limit was. I took all those into consideration. It was a little bit of a gamble but not much. I knew it was a great deal, if in fact I left within 5 years because it got me a lower rate, and if I did stay a little longer, it should still be affordable considering I was careful to stay well within my means and on top of that, I was at a big corporation that consistently gave me raises each year.

I bailed on the place as the market was peaking, four years after buying it. Perfect timing.

Anyway, that's just a side-note. I think the core of this article has a lot of truth to it. In fact, it's things I've been thinking about a lot lately. You can't help but realize how much power the federal banks have once you understand more about how the system works. The role of the fed is much more key here than the various mtg companies underwriting the loans, that are mostly made with money that comes from the fed; not from the underwriters. People can no longer afford to buy a home without borrowing. That's due to a FIAT currency and inflation. If you make a lot of money, the government takes more of it, and that's barely enough to pay off government debt. If you have a mtg, you get a tax break on the interest thereby encouraging people to have a mtg even if they don't need it. The notion of buying a home outright is practically unheard of. People used to do that.

This doesn't take a conspiracy. All it takes is wealthy people looking after their own interests in a world where government (the privilege of using force without consequences) is for sale. It logically follows that the most wealthy people, the highest bidders, will see that as an excellent investment for future gains. We planted the seed of corruption with the very notion that preemptive force could be a force for good.

[EthanAllen]

People can no longer afford to buy a home without borrowing. That's due to a FIAT currency and inflation.

According to Ricardo's law of rent, wages get quickly capitalized into higher land prices so folks can't then save for a house.