Mortgage brokers are total rip-off artists. I know so many peope who have been screwed by them. What kind of asshole morally asks an old man to refinance his house? Those guys should be shot in the shed.
DZ | 04.05.07 - 7:01 pm | #

Leo - That's about as concise an explanation of this problem as I've seen. I've also seen the MITD blamed for gas prices and environmental problems (an offshoot of the urban sprawl you mention).

As a corollary to this topic, I have a suggestion for a post, or at least a question for you to address in the comments. Couple the subprime lending mess with the level of revolving credit debt in the country and also the payday lending industry. To what extent are consumers responsible for their decisions in these areas? I would say we need different regulations in these areas (I'm saying "different" as opposed to "more" on purpose), but they need to account for consumer responsibility.

To the extent you acknowledge consumers' responsibility for the current mortgage default dilemma, you cite the tax code as the primary culprit. However, the tax code does not encourage consumers to carry large amounts of revolving credit debt or to pay 500+% APR on a 2-week loan. 1) That proves your point that the tax code is good at encouraging even more people to make bad decisions than normally would, but 2) It also shows that people make horrible financial decisions sans encouragement by the tax code.

As a libertarian, this topic tears me, because I think people should do their research when it comes to this sort of thing, and I don't think it's the responsibility of an industry to decide what demand they should and shouldn't meet. Just meet the demand. While I think the current regulatory environment in diversified financial services is terrible, I definitely think we need something to protect consumers, who find it much too easy to leverage themselves beyond the point of no return. I have my thoughts, but what are yours?

Thanks
Mike | 04.06.07 - 8:35 am | #

Mike,

I am very reluctant to call for regulation but mortgage brokers need to be reined in. The model I think needs to be emulated is that of a stock broker, who must pass a very tough NASD licensing test, the Series 7, and then must employ the suitability test in every transaction with a client. That means that he must understand the financial circumstances of his client and only recommend suitable investments. Otherwise, he could lose his license and perhaps be sued. This is not at all an onerous requirement; in fact, it reinforces ethics in the profession. I am not a broker but I have a Series 7 and my colleagues and I have been astounded over the past few years at the unethical loans that were getting done.

The other fix is to make the documentation of a loan more understandable. Currently, it is full of regulatory legalese but even I had to call my lender to assure myself that I had a fixed rate loan as nowhere in the document did it say that. I would advocate for a plain English explanation of your loan accompanied by a chart showing your payments today and how they might spike with different interest rates. Most ARM customers don't understand that their payments will not reprice to market but will be 200 or 300 basis points above.
Leonardo | 04.07.07 - 8:19 pm | #