Landsberg,

You said: " If you get to live in a nice home for a few years and then lose it to foreclosure, you are not worse off than someone who never got to live in a nice home in the first place."

That's total BS and you know it. Foreclosure trashes your credit rating and then you are worse off. You could have just kept renting for a few more years, improved your financial situation, and then perhaps bought a home. Instead, you were encouraged to buy now and now you wont be able to try again for ~10 years. Further, good luck on getting a lease on a decent home after foreclosure. Now, you are stuck in the nether world of landlords who don't care about your credit. Guess what sort of place you'll be living in? Also, you want a car loan, a loan to send your kids to college, a credit card to finance unexpected car repairs or medical bills? Forget it.

I'd be more willing to accept your argument if you didn't ignore the issue of culpability if the lending institutions (and their government overseers) in this rash of foreclosures.

Additionally, the idea that there is a limited number of houses available is overly simplistic. The number of homes for sale at a given time fluctuates in response to the economy. Rental property can be put up for sale, for example. Developers can build more houses. People are not limited by the physical availability of a home, but rather whether or not they can afford one in the place they want to live. Actually, property speculators are probably buying up the foreclosures to use as rentals in hopes of selling for a profit when the market improves. (Guess who they are renting to?)

Lastly, the idea that we should be helping the even less fortunate (e.g. the homeless or the starving) instead of the victims of the mortgage swindle is also BS. You assume that we must choose between one or the other. That's a false assumption. We should help both.

This entire fiasco is a pretty good example of what happens when government doesn't carefully regulate the financial industry. The people with the advanced degrees and cushy jobs make money and the working class gets taken to the cleaners.

I'm tired of the "screw the working people" economics that gets published here on Slate.com. No matter what happens, we're not supposed to blame anyone and just marvel at our wondrous economic system. We're all just part of a complex system where any bad is balanced by an equal and opposing good somewhere else. One wonders if the economists who write here have ever worked a day in their lives. A viewing of "Roger and Me" is prescribed for all of you.

mike_in_nm:

I'd be more willing to accept your argument if you didn't ignore the issue of culpability if the lending institutions (and their government overseers) in this rash of foreclosures.

This may be true, but you seem to be ignoring the responsibility of the people that take out these loans. I don't see it as a situation where people with "advanced degrees" are taking the working class to the cleaners. Isn't it a common addage "If a deal sounds to good to be true, it probably is"? From the majority of the reports I've seen, the people who are facing forclosure are people who took out varriable rate mortgages or no-prinicple mortgages. The whole idea behind these mortgages is that your are gambling on housing prices increasing so that you can refinance into a stable mortgage after a few years of making payments and your credit improves. However, after a few years the rates on the mortgages either go up, or you have to start paying on principle as well causing the payment to increase. This is explicitly stated in the mortgage contract and it is the buyer's responsibility to know this before signing.

Certainly, some of the lendees knew they were taking a big risk. Also, some people lost their jobs, etc and couldn't repay for that reason. I'm not arguing that all foreclosures are wrong or bad.

However, the average American only has a high school degree and many don't even have that. Are they really prepared to analyze the intricacies of one of these loans? (A standard, fixed rate loan is complicated enough.) Also, to an average person, the idea that a bank would give them a loan that they can't afford to repay is illogical. So, they trust their banker and sign the papers.

In this case, its much easier to blame the victims than the bankers. Just waive your hands and say "oh well, I guess they get what they deserve." Meanwhile, the MBAs and CEOs are laughing all the way to the bank.

Stopping foreclosures changes banks' contracts, affects property rights and is overly paternalistic. Even if, as you claim, the average American is not be the most educated creature, we still have to assume he does not need constant supervision to prevent him from making poor decisions. Otherwise, our society would become completely paternalistic - with the "educated" (who can figure out what everyone can afford) making decisions for the average. I don't think anyone is in favor of that. Reliance on a doctrine of personal responsibility has a downside to be sure, but I don't think anyone has come up with a better solution.

A little cynicism and distrust on the part of consumers never hurt anyone.

I agree that some people are in forclosure due ot loss of jobs, etc. But there have always been people who have lost their homes due to loss of a job, so why should people now get bailed out for this. I know its not their fault they lost their job and their home, but sometimes bad things happen to good people.

I also agree that the banks and lending sources should be held accountable for lending to people who most likely couldn't repay their loans. However, this is happening by the billions of dollars that banks are posting in losses from investing in and underwritting these loans.

As for trusting a bank or mortgage broker to have you best interest in mind is also just a bad idea. No one would be surprised to hear a car salesperson sold some one a car or a feature on a car that they didn't need. This is part of their job, they make money on comissions from sales. The same holds true with a mortgage broker or a bank. They make their money off of a comission from closing the deal or the interest in the loan, so it is in their best interest to have you sign the contract regardless if its in your best interest. If you can't pay they take your home and sell it for as much as they can.

In the end half the responsibility is on the buyer to be aware of the contract you are signing. If you don't understand the contract then don't sign it or find some one who does not have a vested interest in the deal to explain it to you.

"This may be true, but you seem to be ignoring the responsibility of the people that take out these loans. I don't see it as a situation where people with "advanced degrees" are taking the working class to the cleaners. Isn't it a common addage "If a deal sounds to good to be true, it probably is"?"

It's been slowly coming out that people were blatantly lied to by lenders and mortgage underwriters. There are articles about it, and you'll have the chance to read more as the extent of the fall-out becomes apparent.

So, yeah, in many cases working class ppl were taken to the cleaners by someone who knew the financial jargon w/ an advanced degree.

The situation of a lender saying one thing and having another in the contract is a bad situation, and I'm assuming probably illegal, but I don't know for sure. Either way, the truth is there, in writting, in the contract, before you sign it and it is your responsiblity to read a contract before you sign it. Now if something is changed after you sign, or something was left out, then the lender is in breach of contract and you should be able to get out of the contract or negotiate a new one.

mike_in_nm:

However, the average American only has a high school degree and many don't even have that. Are they really prepared to analyze the intricacies of one of these loans? (A standard, fixed rate loan is complicated enough.) Also, to an average person, the idea that a bank would give them a loan that they can't afford to repay is illogical. So, they trust their banker and sign the papers.

In this case, its much easier to blame the victims than the bankers. Just waive your hands and say "oh well, I guess they get what they deserve." Meanwhile, the MBAs and CEOs are laughing all the way to the bank.

So, anyone willingly signing a contract they don't understand should be absolved of their obligations under that contract because they trusted that someone who stands to profit from the closure of that contract (the lender) to advise them without bias as to what's in their (the borrower) own best interest?

Anyone getting into a deal worth hundreds of thousands of dollars should consult with a real estate attorney who has no stake in the closure of the transaction if they don't understand what they're signing (and if they can't afford a consultation, that should be the first sign that they probably can't afford the house). Any lender who would balk at a less educated prospective borrower having their contract reviewed probably deserves more suspicion.

After thinking about this idea, I tried to imagine what my grandfathers (neither of whom even attended high school due to the Great Depression) would think of this situation. I can't imagine either of them agreeing to sign papers that they didn't fully understand. "Always trust a bank to look out for your best interests" wasn't even on their radar. Full disclosure: I have an adjustable rate mortgage. However, when we signed the paperwork, we knew what we were getting into, how much the highest possible payments was, and how we'd have to change our lives if we had to pay the highest possible payment. I assume that any basically responsible (ie, not entirely stupid or entirely greedy) house-buying American did the same. What I'm hearing from the neighbors, though, is that houses are being lost by people who bought fancy new cars and took fancy vacations. These circumstances tend to limit my sympathy.

mitzj,

So you trust that the home loan industry is operating in an ethical manner, but borrowers should not?

These people trusted their bankers to tell them the truth about their loans. Bankers are professionals and they have ethical obligations to their customers. If they don't want to honor those obligations, then they should take some of the responsibility to clean up the mess they made.

The idea that someone without a professional background in finance or law could read and completely comprehend a mortgage contract is laughable. Did you read yours? Did you understand it? One should be able to rely on your lender to explain the important points to you and to warn you about the possible implications of rising interest rates, etc. To imply that any other situation is permissible is simply a restatement of "there's a sucker born every minute."

Lenders handed out loans to those that they knew probably couldn't repay because they could make a profit on the loans either way. In the process, they've ruined lives, the housing market, and damaged our economy. Someone should be held accountable.

So bankers have no obligation to act in an ethical manner? They should be able to talk anyone into anything and as long as the sucker signs the papers, its OK? Also, in addition to paying loan costs, we are now also supposed to hire an independent attorney to examine our mortgage contract for a simple home purchase? When we say that professional ethics don't matter, where does it end? Maybe we need to hire a second attorney to check on the first attorney?

Most people suffer under the illusion that the bank will not give you a loan that you can't repay. They don't (and shouldn't have to) understand all of the arcane intricacies of the home mortgage industry. Banks should just operate in an honest manner and not screw their customers. There is plenty of money to be made by making home loans in a responsible manner.

In a swindle like this, its the poor and undereducated that suffer the most. People like you have no sympathy for them and they don't have the means to take their lenders to court.

In our grandparent's day, these types of loans didn't exist. Why? Because the banks knew who would be likely to repay and who wouldn't and they didn't cross that line. In the past, you needed a full 10% plus closing costs in the bank to get a mortgage loan. If not, you waited until you could save enough.

That's right mike, banks have no responsibility to be ethical. Legal yes, ethical no. Their responsibility is to make a profit only. They took a risk making these loans, every loan. They have the chance of no longer existing if they took on to much risk. People being foreclosed on will keep on living and probably making poor financial decisions.

Nobody should have the notion that a 6 figure transaction is a "simple purchase".....

One thing I think that's being missed in a lot of these discussions is that many (if not most?) of the crazy types of loans (no doc, etc) were not done face-to-face with a bank. The people selling these loans were, for the most part, NOT bankers. They were loan officers under a broker of a hastily put together company that was trying to get in on the easy money of selling loans. People that were probably not educated much beyond the people they were selling too - I knew plenty of them when my BIL was in the biz.

When I say "banker," I mean someone working directly for a bank: someone that probably had lots more financial experience that 75% of the easy-money loan offiers that were out there.

And I agree with you that it is the poor and undereducated that get the shaft. Their lack of education and understanding combined with the ruthlessness of these loan (shark) officers will ensure that they are the ones that get screwed in the end. The Wall Streeters that figured out the CDOs and sold the banks on them are not going to feel any pain.

Did you just say Wall Street and Banks arn't feeling any pain?