Wednesday, October 3, 2007

Predatory Mortgage Lenders?

There is an editorial in today’s Concord Monitor entitled “Predatory mortgage lenders are destroying America's cities” by Jim Rokakis - treasurer of Cuyahoga County, Ohio.

His premise is that the evil Wall Street financiers preyed on unsophisticated home owners. It was inevitable that these home owners would default on their loans, and that the Wall Street crowd knew this. And now, neighborhoods where hundreds of homes are in foreclosure are seeing drastic changes – all bad, due to homes remaining vacant. Criminals have moved in and the neighborhoods have declined.

I feel bad for folks that will lose a home. I couldn’t imagine it. I also feel bad for the people left behind in the neighborhood who now have to deal with the aftermath. But the editorial makes absolutely no reference to the role of the homeowner in our current housing mess. No one put a gun to their head and made them sign these deals!

The “victims” either did not know what they were signing, or knew perfectly well and now want someone to bail them out.

If it’s the first option, I have one question: How could these folks be so stupid? These homeowners probably did not read the documents they were signing. They made stupid economic assumptions (no asset, stocks or real estate or commodities ever continue an uninterrupted upward climb). They completely ignored the common sense maxim: “If it seems like it’s too good to be true, then it is.” They failed to remember that in our capitalist system one of the roles of business is to extract money from us. It’s not a bad thing, but it is a bad thing to forget. All the mortgage lender’s advertising aside, they are in it to make as much money as they can – don’t think they are going to be your “partner” – that’s not how they make a profit. I don’t think business is evil. But, I’m not so naive to think that business is my buddy either.

If it’s the second option and they knew exactly what they were getting into, too bad. They took a risk and they blew it. I don’t think the government should do anything to bail them out. No one should bail out the mortgage lenders that are declaring bankruptcy either. They made a big bet and blew it too.

Beautiful Fall Day

It's a beautiful fall day here in Illinois. Seen on the Fox River Trail