No, Homeowners Were Not to Blame for Housing Crisis
In the midst of the financial crisis, a Rasmussen poll revealed that the majority blamed the cause of the crash on individuals who had borrowed more than they could afford (55 percent) versus Wall Street (25 percent).
Our foreclosure lawyers in Miami-Dade know that this perception was skewed from the beginning, fueled by the spin machine of the newly-born “Tea Party.”
Unfortunately, even with the advantage of time, this perspective has remained largely unchanged, despite the blatant avarice of bankers, mortgage servicers and the like in the years leading up to the crash. Clearly, the logic goes, people should have known better than to get greedy with loans that were two or three times what the house was actually worth.
But again, that thinking fails to take into account what was happening at the time, which was that all homes were priced significantly above value, so as to make it seem there was in fact nothing out of the ordinary.
What’s more, Wall Street was systematically and aggressively incentivizing the completion of these loans for lenders and employees. For example, Countrywide had a marketing scheme that it dubbed the, “High Speed Swim Lane,” (later nicknamed by employees as “the hustle”). Scores of sales representatives received bonuses based on how many loans they could originate in a single day. In some cases, loan producers were booking upwards of 70 new loans every single day. Do you think any one of those was receiving any type of careful consideration?
Of course not, especially when the originators who tallied the most every month were rewarded with all-expenses-paid Caribbean vacations, treated to private performances by Elton John, Aerosmith and the Eagles and even sent to Porsche-driving school.
And yet, we are lead to believe it was the American people’s penchant for greed that toppled the system? The American people were somehow complicit?
Some economists speculated at the time that Americans had developed an unhealthy tolerance for debt. We all become too lax with our risk-taking when it came to real estate purchases.
This whole “Everyone-is-to-Blame” theory, which was analyzed by writers at the New Republic in a recent in-depth report, is totally erroneous. And why would such a myth be perpetuated?
This narrative serves several purposes for large banking institutions. It helps to silence any public demand for regulatory financial reforms. This line of thinking worked to severely cut the whole Home Loan Modification Program, which was intended to help cut down borrowers’ highly-inflated monthly mortgage payments by either writing down the principal or helping them to refinance.
This whole idea of HAMP is what set off Rick Santelli in his 2009 Tea-Party foundation rant about homeowners being “losers.” Homeowners were called “irresponsible,” “liars,” and “cheats,” who were simply out for a “taxpayer-subsidized windfall.” The program ended up becoming a public relations nightmare, was left adrift and became a burden to those it was supposed to help.
And when the government reached a $13 billion settlement with J.P.Morgan for its role in the crash, editorial boards across the country were critical that the settlement “unfairly singled out” the bank when “everyone” was responsible.
But everyone was not responsible, no matter how much this line gets repeated.
First of all, the whole notion rests on this idea that people knowingly took on risky loans that were far bigger than what they could afford, and furthermore that they chose to do it all around the same time in 2004. Of course, this makes little sense.
Now, this doesn’t mean that all borrowers were innocent. Of course, there were a few who did perpetuate mortgage fraud by misrepresenting what they earned or what they could afford to pay. But those numbers are extremely slim (about 2.5 percent according to a report by New Century).
Meanwhile, banks, which set the loan-to-value ratio for properties were reportedly off by as much as 40 percent in the years leading up to the crash.
Then there was the corruption in the appraisal process – and this was rampant and had zip to do with buyers. Prior to the burst of the bubble, a petition signed by some 11,000 appraisers registered a major upset regarding banks’ pressure on appraisers to reach inflated and outright dishonest valuations of property.
What’s more, banks at the same time were systematically deceiving borrowers through this process as well. This has been proven by the Financial Crisis Inquiry Commission, the Levin-Coburn report and has been stated and restated by lawsuits brought by attorneys general nationwide. Borrowers’ signatures were forged. Documents were altered.
The list of evidence goes on.
The bottom line is that borrowers, if they had any role at all in the crisis, possess a far lesser degree of responsibility than lenders and servicers – all of whom essentially continue to evade any real sanctions.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call 305-358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.