As we watch Congress bail
out Wall Street over the mortgage crisis, the pundits are forgetting the two
root causes of the problems we face today - lies by mortgage brokers and people
who can't pay their mortgage bills. Boycott Watch believes Congress is ignoring
the root problem, thus the bailout is just a temporary patch, and unless we
address it, the economic pain will just increase in the future.
Let's examine the root of the problem.
People who could not get mortgage loans from banks
would go to small mortgage companies to get loans, as in many cases these
companies would do things banks would not - help people lie on mortgage
applications. Typically, someone who could not get a home loan would suddenly
have an advocate who would look for things like "babysitting income" to inflate
the income of the applicants. Then, these mortgage companies would use
independent appraisers to value the home, but only ones who would play along
and inflate the value of the home, despite that being illegal. Appraisers knew
that if they don't play along, they would not have work.
So, people who did not have the money to make the
mortgage payments would get loans based on 70% of the appraised value of the
home with an inflated income. In the mean time, because of the 30% spread, the
mortgage companies could tack on all kinds of fees, including things like
$1,000 signature fees, meaning you pay $1,000 for someone to sign their name.
In many cases, people would pay twelve or more points on their mortgage loan to
the mortgage company, fees that were split between the company owner and the
salesman. After these fees, the mortgage companies would present attractive
loan packages to lenders, knowing the numbers were not legit.
Processing of the titles and loans would often be
done by people directly associated with the mortgage broker, but separate
enough not to cross any legal lines. Still, the transactions were easily kept
within one business family. So, after putting in an average of eight hours per
sale, for example, the people involved could bring in $8,000, or $1,000 per
hour per person involved. The mortgage companies would make big money putting
people in homes they could not afford, and then not telling the people that by
being a home owner, they no longer had anyone to fix the leaky faucet as part
of their rent.
Even with a bailout, Washington is
forgetting one important factor - people still can't afford the homes they live
in. They were scammed into buying a home they should have never received a loan
for, simply because increasing home ownership made politicians feel good so the
politicians encouraged impossible loans for a short-term boost in the pools.
Moving these mortgages around is not going to solve problems for these people
when then numbers just don't add up.
that investment involves risk, and people who go to Las Vegas don't get
reimbursed for their risk. Regardless of the validity of these arguments,
Congress is not assuring people what they want to see.
1) Any home mortgage taken over needs to be
refinanced so people can start a new payment plan that is manageable.
2) Any home in which mortgage re-financing is not viable
needs to be sold to a new owner who can keep the existing family in the home an
convert their former mortgage deal into a rental agreement, thus avoiding
flooding the market with more home for sale or homeless people.
3) Americans want reassurances that they are not giving
charity to millionaires who can afford to lose money in the bailout. Americans
are charitable by nature, but not stupid.
Americans see the importance of government involvement in solving the problem,
Americans, both liberal and conservative, also want an intelligent solution,
not a blanket bailout. Still, we are seeing Congress focus on pork-barrel
politics rather than the needs of the consumer, as evidenced by the placement
of specialized tax shelter renewals in the bill, as opposed to concentrating on
In the mean time, the FBI needs
to seek prosecution for fraud in the mortgage market and the problems that
created the current mess. Let's face it - the middle class runs the economy, so
consumers will only regain confidence in the government bailout plan and the
economy when they see those who created this economic mess prosecuted, be it
Wall Street executives or people who lied or knowingly signed, processed or
facilitated false information on mortgage applications, not to mention mortgage
sales people who scammed the poor into paying, for example, large fees for
someone just to sign their name.
Fred Taub is an expert in consumer
issues, boycott consultant and is the President of Boycott Watch
(www.boycottwatch.org) which monitors and reports about consumer boycotts.
© Fred Taub, 2008