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Mortgages- Blame Game or Fact?

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True or False:

In the above video, a simplified version of the economic crash is portrayed but is it accurate? I’m not a Realtor, I’m not a lender, I’m a marketer, so my expertise is not in the economy (although as any consumer I *do* have an opinion). Is the video on target? What is it missing? How is it right or wrong?

According to video creator Enspire.com, “This is part of a series of videos exploring some of the causes behind the crisis. In no way were we intending to point out one guilty party, as the situation seemed to be a perfect storm of several different issues occurring at the same time. We hope to do another video that will further delve into some of the other pieces of the puzzle.

I originally saw this video on Bubble Meter which has not yet received comments, but I’ll be interested to see what their audience reads into the video.

Lani is the Chief Operating Officer at The American Genius - she has co-authored a book, co-founded BASHH and Austin Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.

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18 Comments

18 Comments

  1. Juan Sequeda

    November 20, 2008 at 10:27 am

    Yes Yes Yes! I know so many people who worked for Country Wide, and they would do the exact thing! Sell loans to people that they knew were not going to be able to pay after several years and that was wrong! It’s also the people’s fault for not reading the fine print, and not being financially responsible. It’s everybody’s fault!

  2. YourMortgagePlanner

    November 20, 2008 at 11:34 am

    They forgot to add the Real Estate agents who had enough knowledge to be dangerous and direct there buyers to a lender that could “Get the Deal Done”. Brokers and Banks don’t sell Homes they Sell Loans. The other party they forgot to mention is the Borrower who saw the internet ad that offered 1% and wouldn’t listen to the mortgage professional they were working with and found a lender that would give them the 1%. When it comes down to it no one is victim, we did this to ourselves. There are bad seeds in every group.

  3. Jim Gatos

    November 20, 2008 at 12:41 pm

    I don’t blame myself one bit…

    First of all, I DID in fact tell one buyer client I was working with NOT to buy a 3 tenement building at $300,000 because I didn’t think it was a good investment; however when he made it clear he was going to buy it one way or the other I told him I WILL sell him the 3 decker (it was listed with another agent and company) and rather than have someone else make a commission, I’d rather do it.. At least he was getting my advice that way… I didn’t find the mortgage company he found. The ones I told him to go to wouldn’t approve the loan.

    C’mon, even though I lived through something similar to what happened now in the early nineties I don’t think NO ONE could have predicted what was going to happen, including you, my friend. It’s so easy to try to make yourself a saint after all this takes place. Where were YOU when it was happening?

    Another example; a couple I knew with a history of non payment insists they wanted to buy a house because they were paying a ridiculous amount of money for rent. I really didn’t think they would be able to keep the house only due to their history at the time, not the market, but I helped them out because the husband’s parents were past clients of mine who BEGGED me to help them out. They knew what they were getting into and yet, later on they blamed me… I don’t know if they still do, and I can tell you, it doesn’t matter. People believe what they want to believe. My feelings were really hurt with that one.

  4. David G from Zillow.com

    November 20, 2008 at 3:54 pm

    No, this is mostly inaccurate. This person actually has no clue how the wholesale mortgage channel works and this video presents a biased and inaccurate view of who is to blame.

    Contrary to what this video suggests, pricing and yield in the wholesale mortgage channel is primarily determined by the investors, not the lenders. And many investors, especially those that created the sub-prime products, were mortgage banks who also managed retail operations selling very products direct to consumers. Brokers don’t create these risky loan products, they merely sell them. Brokers do have minor discretionary influence over the final cost of a loan but the yield that a broker enjoys is primarily a function of the wholesale pricing determined by the investor. To the extent that incentives paid to brokers are to blame for irresponsible lending then it’s the investors and not the brokers who should shoulder the blame for creating those products. The same argument applies to loose lending. Lending guidelines, like yield, are primarily determined by the investor and not the broker.

    Juan’s comment offers further proof that this analysis is biased and incorrect. It’s not just the loans sold by brokers through the wholesale channel that are falling apart. Retail lending operations are being taken down by bad loans just as quickly as wholesale ones are. If it was just the wholesale loans that were defaulting, this video would be accurate. That is not the case – wholesale, retail and correspondent channel loans are all defaulting, again pointing to the investors and their product pricing as the root cause of the defaults. Much of the video is based on the flawed assumption that the retail channel has no cost of sales which is again totally incorrect. Some investors have in fact shut down retail operations while maintaining wholesale and correspondent channels because the shop-front was less efficient than 3rd party sales.

    Dishonesty and greed certainly also compounded the crash but these loans were horribly priced before anyone started lying about their income. And as far as I know, there’s no evidence to suggest that liar loans were more common via the wholesale than retail channel.

    The value that a competent mortgage broker can add to a real estate transaction is horribly misunderstood and this video will just amplify that noise. Let’s hope it doesn’t get too much pick-up. The video’s explanation of the securitization issue is however more accurate so at least they got it right for 15 seconds or so.

  5. David G from Zillow.com

    November 20, 2008 at 3:55 pm

    correction: “selling very products” should be “selling very similar products”

  6. Jeremy

    November 21, 2008 at 10:07 am

    I agree with David G.

    The general public would like to think everything is the fault of the brokers and originating banks, but at the end of the day somebody was buying those crappy loans. If there wasn’t a market for it, then nobody would have made them.

  7. Mark Storolis

    November 21, 2008 at 10:35 am

    To Jim:
    Well Jim, there are plenty of people to blame. You Jim, you are to blame. There comes a point where ethics have to prevail over greed. The whole mentality that “rather than someone else make the commission, I’d rather do it” is so shortsighted and self-centered it makes me sick. If an investment is bad, and the client is bad, then the deal is bad – and if you are willing to put it together for him, you are bad. To throw your hands up and say, “NO ONE could have predicted what was going to happen” is bogus, and you are just passing the buck. It starts with your immediate greed Jim. Though you may have missed out on your initial commission, think about how much bad-mouthing these people are doing about you: the Realtor who got them into this whole mess and the Realtor who is not able to bail them out. These people who “BEGGED” you are on their knees because you put them there. What do you think that does for your community credibility?

    To David G:
    It is the mortgage banks fault for unstable packages? Yes, that is the source of the problem. However the mortgage brokers and Realtors are the ones who put the pen to the paper, there has to be some kind of accountability here. The dumb broker argument just rubs me the wrong way. (Though sadly true)

  8. Jim Gatos

    November 21, 2008 at 11:09 am

    Mark,
    You make me sick, too.. I think you shouldn’t “assume”.. Haven’t you heard what happens when you “assume”..In fact, you sound like a real “know it all”, and pretty much short sighted and self centered yourself.

    Who’s bad mouthing me? The guy that bought the three tenement? I have an approved short sale on the property. His relative went to another agent for another house I never had anything to do with and they didn’t get a short sale approved. I think I may have been able to do it but it was too late when I found out about it.

    Sorry I make you sick but believe me, your cornballedness and “know it all” attitude make me just as sick. Did I know the market was going to turn the way it did? Of course not! And I do believe that people have the capacity to change for the better. That thought did cross my mind when I sold them the house. BTW, they still own the house and haven’t lost it, nor do I believe they will from what I know. Would you rather have had them keep paying a ridiculous “mafia like” rent? You weren’t there so you don’t know. Yes, I may have thought the first client was not buying a great investment but first of all I have NO right in denying someone the right to buy a house and I did in fact advise him. Did he listen? Not to everything, but I did in fact do my job. Secondly, as I said, I didn’t think the property was not a good investment due to the market crashing; it was other issues. Strangely enough, those issues were not real issues considering the problems with the market crashing…

  9. Jim Gatos

    November 21, 2008 at 11:21 am

    Just to clarify one more thought, Mark. The couple I mentioned before had NO issues with the house; it was the mortgage. I did more than an great job in getting them the house for the market period we were in then. It was the mortgage, they understood everything they were getting into, I had nothing to do with the mortgage. Actually, at the time, the mortgage looked good. The market shifted. Blame me for that LOL…

  10. Steve Simon

    November 21, 2008 at 12:00 pm

    Very poor content in the video Lani…
    The creator of the vid does not have a good understanding of the primary and secondary markets, their history is inaccurate, in general simplistic and strewn with error.
    The debacle took roots not in the system of selling the paper in the secondary market, or the terciary refunding of the secondary market players via securites (investment).
    The true roots of the dilema were to be found in the CRA from the Carter era, the re-write of the rules by Mr. Rubin (Clinton era) and the changing of significant safeguards like 2.5% reserves for FNMA and FHLMC (instead of 10% like the rest of the banking industry). The creation of “Diversity” rankings to leverage banks into areas of questionable lending quality by withholding the right to merge or grow if they did not. Here is where the problem started.
    It was political by creation, and now they are attempting to make use of a political cure; doomed to fail by definition.
    In the free enterprise system business must be allowed to fail. Markets must be allowed to rise and fail. The attempt at artificial stabilization (to achieve an equilibrium) never works.
    Kind of like golf, “Hit a bad shot, take you medicine,and chip the next shot out into the fairway… Trying to hit the miricle save the stroke shot rarely works”
    Just my thoughts:

  11. Jim Gatos

    November 21, 2008 at 2:04 pm

    The finger pointing comes primarily from mortgage people who are suffering from a “guilt by association” complex.. Yet I used to tell people, even in 2004 that the market goes up and I have personally lived in the late 80’s-early 90’s and have seen the market go down. After 2001 the market went up again, in some cases and locations even higher than it was at the peak in the late 1980’s. I am not “Criswell Predicts” or a real estate time traveler. If I started giving my predictions then it would have been “dammed if you do, dammed if you don’t”. So you do the best you can. Another thing I did tell people always is to get a fixed rate where possible because at least you’ll know what your payment will be in the future. Most of us that can say they predicted a downturn; I ask, did you predict THIS MESS? Of course not…This is the first time in US real estate history that prices are lower and rates are lower. This defies regular economics. Will it get better?

    If I could answer that and when, I’d be in Vegas rolling dice right now with my powers and abilities….

  12. Ney

    November 21, 2008 at 2:14 pm

    Don’t blame the “poor” borrower, he was only trying to provide a home for his family. He expected the professionals of the industry to be professionals and guide him in the right direction….blame the other guy!

    Don’t blame the “poor” mortgage broker, he only sells loans….blame the other guy!

    Don’t blame the “poor” real estate agent, he is only acting according to his client’s request to buy a property. I adviced him not to do it, therefore I did my part…..blame the other guy!

    Don’t blame the “poor” government, it was only trying to have a free market that would enduce prosperity for all….blame the other guy!

    Don’t blame “poor” Wall Street, it was only trying to capitalize on an opportunity in order to bring profit to its investors. After all investing should have its rewards otherwise it would not be called investing….blame the other guy!

    Don’t blame the “poor” lender, it was only trying to keep its customer happy by providing available credit……blame the other guy!

    In my opinion everyone shares the fault of our economic crisis. Everyone that is feeling the “pinch” and is pointing fingers at “the other guy” because of it, knows very well he is partly at fault.

    But are we going to solve anything by pointing fingers at each other when everyone shares part of the blame (some more than others)?

    Here is a different perspective to this video
    (https://www.youtube.com/watch?v=HhG7o35NfIU)

    And here is my post regarding “The Blame Game”
    (https://sccrealestateuncensored.com/2008/financial-crisis-whose-fault-is-it/)

  13. Jim Gatos

    November 21, 2008 at 3:24 pm

    “Don’t blame the “poor” borrower, he was only trying to provide a home for his family. He expected the professionals of the industry to be professionals and guide him in the right direction….blame the other guy!”

    Blame the borrowers who LIED TO their agents and were in cahoots with some of these “Miracle Mortgage Officers” to deceive and get crazy loans that were more than the value of the property THEN!

    C’mon, agents turn over buyers to mortgage companies or they come already pre approved. A lot of them had NO idea of the crazy deals they were making. This is a “Dr. McCoy complex” here: “I’m a real estate agent, NOT a lender damm it!”

  14. Linsey

    November 22, 2008 at 5:18 pm

    The video is alarmingly bad, clearly made by someone who doesn’t understand the industry. It sounds as if those ‘evil’ mortgage brokers weren’t collecting a fee, we wouldn’t be here today. Just not true.

    The lending requirements had become too lax and I’ve heard everyone blamed for that. If you ask my Rush Limbaugh loving dad – it’s Clinton’s fault. I personally think Bush’s 8 years haven’t helped and Greenspan holds his fair share of blame.

    But for all those busy pointing fingers about who was to blame – everyone enjoyed the economic party. The economy was rolling, homes were appreciating, unemployment was at an all-time low, and investors in the stock market enjoyed great returns. No one was left out of the boom – just as no one is left out of the bust.

    Everyone played their role as far as I’m concerned and we can Monday-morning-quarterback the thing to death. I think that will be done by historians for decades. It doesn’t change a damn thing.

    In the meantime, let’s all just get back to work and figure out how we can each be part of the solution.

  15. Ney

    November 22, 2008 at 8:18 pm

    Lindsey,

    Amen to you sister!

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Economic News

How small businesses can keep up with the changing workforce

(ECONOMIC) Trade schools are booming as career outlook grows. College enrollment is down. The workforce is changing. How can small business keep up?

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Trade employees in the workforce

College enrollment has dropped off by three million in the last decade, with a drop-off of one million due in the last several years as a direct side effect of the Covid-19 pandemic. This phenomenon clearly does not bode well for the future of the United States’ economy and workforce, with students who attend low-income schools and come from low-income families being the most affected. These changes are disproportionately affecting students from low-income schools and families, the very people who need higher education the most, and are erasing much of the work done in the last decade to help close the income and race gap between students, colleges, and socioeconomic backgrounds.

Enrollment in trade schools is skyrocketing.

Recently, trade schools have seen a 40% bump in enrollment across the board. Many students are enticed by the fact that trade schools are affordable and offer a quick turnaround, with students paying $16,000 or less for their program, and their training taking a year or less to complete. Beyond that, those who complete trade school is all but guaranteed a job on graduation day. Their earning potential is often two or even three times higher than the initial cost of attending the program. As many have found, the same cannot always be said about those who pursue a college education.

While the average cost of college at an in-state and public institution hovers at around $28,775 per year (according to Forbes) and takes an average of four years to complete means that trade students have a cheaper educational cost, (between $16,000 to $33,000 for the entire program, or about equal to just one year of a public college tuition) can get work in their field more quickly, and can usually make more than their educational costs in their first year on the job. Tradespeople make an average of $54,000 fresh out of trade school, which rivals the role average college student’s first salary of $55,000. It’s no wonder so many people are choosing to forgo a formal education for trade school!

The almost insurmountable cost of college combined with ever-growing inflation and a lengthy list of requirements just to get a post-college job, all for a low salary and with students having hefty loans to pay back, also play a key role in the downturn in the popularity of college.

The implication of fewer college-educated people, however, means that over time, the United States as a whole could face an economic downturn, as it gives rise to many more blue-collar workers. This can irrevocably alter the makeup of the workforce. Despite current unemployment rates being among the lowest they’ve ever been, the American people are already starting to see a shift in the labor market.

Already, we see a strain in the labor market when 25% of skilled workers in the U.S. exited the workforce following the Covid-19 pandemic. The economy has become so highly specialized that if the U.S. were to keep up the trend of losing college-educated workers, there could irreversible damage to the United States’ economy, deepening the ever-growing divide between the middle class and the working class, further reducing the ability to affect the global economy, knocking the United States out of the classification of a “global superpower.” To make matters worse, much of the United States labor pool is outsourced, and we are seeing the rise of artificial intelligence and robotics taking over many jobs, especially minimum wage jobs. While none of these factors alone vastly affect the U.S. labor market, this is only the tip of the iceberg.

So what can employers do when the makeup of the workforce starts to shift?

Employers could shift the focus on the years of experience rather than the type of education the potential employees have, as well as offering more extensive on-the-job training, which is already commonplace in some industries. Even for those with a college education, the requirements for entry-level jobs seldom match the salary, with many employers requiring a four-year degree, two or more years of experience, and fluency in different programs which vary from company to company. Employers, if possible, need to offer higher salaries with fewer requirements, as many young people are finding the pursuit of college, plus the various other requirements just to be considered for a barely above minimum wage job, while they’re drowning in student debt fruitless, so they forgo college altogether.

A post-pandemic society looks vastly different, and employers must adapt to keep up.

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Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

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Older man pictured in cafe with laptop nearby representing boomers retirement discrimination.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

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Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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