In general, I agree with this. But there's a wrinkle that tends to get overlooked. It used to be that people's relationship with their banker was a trust relationship, not unlike with their doctor or lawyer: you counted on them to help you look out for your own best interests.
I guess I just don't trust people that are helping me make decision that will effect my life in such a great manner. I think it has a lot to do with the way people think, or don't think these days. I'm not old I'm rather young but it seems to me that the overall population of the USA is getting dumber and dumber and relying more and more one being told what to and not to do and doing less thinking for them self's.
Think about your father or grandfather, would they have signed a loan for a house without reading and understanding what it meant? I know my father and grandfather would read and do read every word, I know I read every word, but I've been called paranoid more then once.
I'd say that's apples and oranges, sane. Mortgages today are sooooo much more complicated than they were in my grandfather's day -- or even my father's -- I don't think it's reasonable to expect everybody who gets a mortgage to be able to understand everything in it.
We don't expect people to understand every word of a will or a contract or a medical chart, nor would it be reasonable to. People go to specialized schools for years to learn how to write, read, and understand those things. Laymen who need legal or medical services cannot be expected to just pick those documents up, read them and understand them. Mortgage paperwork has become the same way. It's too complicated and too loaded with technical jargon for most laymen to understand. It's too complicated and too loaded with technical jargon for most people in my grandfather's day to have understood, too.
That's why, turning to your conclusion, duty, I don't quite agree with you. To a certain degree, a lot of people with bad mortgages are in that situation because the rules of the game changed -- i.e., bankers went from trusted advisers to loan salesmen trying to meet a quota -- without anybody telling them. I'm not ready to just throw those people to the wind.
True, it is hard to understand some of the language in documents today, I guess I have somewhat of a nak for it but the stuff I don't understand I take to a consultant. eg. a lawyer or someone that I am paying to advise me and will get no benefit from "walking around the truth". To me doing that is common sens and I guess sometimes I forget that what is common sens to some, is not to all.
I agree that loan programs have become a lot more complex than traditional loan programs. But then that leads me to my next question -- where were the attorneys in all of this? Why is an attorney required for the closing in the first place? You don't NEED an attorney to be present in order to create a binding agreement. The attorney is there to ensure that proper procedures are followed, and to guide people through the process while explaining to them exactly what the terms mean. The attorneys that did every closing I've been to over the years have been very thorough in explaining these things.
It is likely that an uneducated couple going to their first closing will be quite overwhelmed by the whole process. The attorney is there to address this, facilitate, and to ensure that all parties understand the transaction that is taking place. Obviously, the closing table is the wrong place to become educated about the terms of the agreement, and many overwhelmed buyers would undoubtedly be too intimidated to ask questions at that time.
The bill could potentially be improved to include legislation requiring earlier engagement from a real estate attorney. Many of the federal and state-level government-funded lending programs include mandatory borrower education requirements that must be met in order to qualify for reimbursement or re-sale on the secondary market. You could restrict the complexity of lending programs. All of these things potentially add layers of oversight to the market, and increase the cost of making loans.
But where do we stop in regulating the way people spend their money? In general, the public is not putting enough money into savings for retirement. In general, people are carrying balances on their credit cards (and some are even carrying outrageously large balances). The credit world always continues to push the envelope. Economic growth is built on our ability to expand the parameters guiding the credit market. Credit itself is a risky proposition, for the borrowers and the lenders. People will always make stupid decisions with their money, so where do we draw the line in preventing them from doing so? Laying the blame at the feet of the lenders, and letting the borrowers go free, fails to teach a lesson in the same way that bailing out the lenders would fail to teach a lesson. A lot of uneducated amateur day-traders took a serious beating playing the stock market. Nobody bailed them out when the bubble burst. They learned a lesson, picked up the pieces, and moved on. Borrowers facing foreclosure will do the same thing.
The bill could potentially be improved to include legislation requiring earlier engagement from a real estate attorney. Many of the federal and state-level government-funded lending programs include mandatory borrower education requirements that must be met in order to qualify for reimbursement or re-sale on the secondary market. You could restrict the complexity of lending programs. All of these things potentially add layers of oversight to the market, and increase the cost of making loans.
But lack of oversight has also increased the cost of making loans. It's just that instead of those costs being paid by the parties involved as the loan is made, they're being paid by all of us and all at once through a government bailout to, supposedly, avoid a financial collapse that would harm all of us even more.
dutyje:
But where do we stop in regulating the way people spend their money?
I don't think we're talking about regulating how people spend their money. We're talking about what expectations people can reasonably have when they go into a loan officer's office, and whether those expectations have been set. I'm saying it looks to me like the banks changed what the valid expectations were without telling the customer. In my limited experience, at least, the sign on a loan officer's door still says "Loan Officer"; it doesn't say "Loan Salesman."
That said, we certainly can talk about whether bank customers should be entitled to the same expectations they are legally entitled to when they go to their doctor or lawyer's office. Personally, I think it'd be better for all concerned -- customers, banks, the market as a whole -- if they were, but I could be wrong about that. Regulation can create and invigorate markets as well as burden them.
You bring up doctors.. I can lend a bit of insight there as well, although most of it comes second-hand. The medical profession has changed in much the same way that the financial industry has changed. Doctors have become salesmen themselves. They're pushing drugs onto people who don't know any better. The drug industry is built around finding treatments, and establishing recurring income. It is less and less about finding cures. Cures are bad for business, because they don't create any residual income.
When my father (an anesthesiologist) retired, he built a beautiful home on a lake in South Carolina. On one visit, we were riding the boat around the lake, admiring the views of the mountains in the distance, and looking at all the enormous homes that the wealthy had built in some of the more exclusive areas of the lake. We stopped outside an enormous estate that took up an entire peninsula. This estate featured a gigantic house on top of a hill. Also on the grounds was a smaller house (still larger than my father's house). The entire property was protected by a large brick wall around its perimeter.
My father pointed out that the wall itself (exclusive of the two huge homes) was worth more than my father's house. The owner, he explained, only lived in this house (his primary residence) for a couple months of the year. The remainder of his time was spent travelling the world. The smaller house was occupied (sparingly) by his daughter. The source of his fortune? He was an executive for a drug company. He rhetorically asked, "where do you think the money is these days in the medical profession?"
When I used to go to my neurologist (I haven't been there in years), I had ample time to look around as I waited for my (alarmingly brief) appointment. Everything was sponsored by the drug companies. I was started on Avonex, but at my last appointment, my doctor wanted to switch me to Rebif. My course with the disease had been a remarkable success on Avonex... but Rebif had become the brand on everything in his office. After a discussion, he agreed to keep me on Avonex, although he did mention that most of his patients would be switching treatments. I haven't been back because I don't trust him to do what's right for me as a patient. Most other patients, as evidenced by my rather informal surveys of fellow patiens on my annual fund-raising walk, have switched to Rebif with varying degrees of success. It's just as much as business as lending, and doctors are salesman as much as the mortgage brokers.
Also, "Loan Officer" is the title given to the employees of the bank who originate mortgages on behalf of the bank. "Mortgage Broker" is the common name used for the 3rd parties that originate mortgages through our wholesale lending. The loan officers work in the bank branches (or through our telephone-based "LoanLine" channel). They understand the product offerings and tailor the loan to meet your needs, in much the same way as a traditional bank lender-borrower relationship. Mortgage Brokers act on behalf of the borrower to find the best deal. Their livelihood depends on their ability to originate large volumes of loans. The loan officer originates a mortgage as just one part of his/her daily activities, and does not have nearly the level of incentive to hard-sell these products.
With the government taking back control of Fannie and Freddie, you will immediately see better oversight of the offered programs. These programs drive the offerings of the lenders, because Fannie and Freddie are far and away our biggest investors. Privatizing Fannie and Freddie was a mistake, and no doubt a contributor to the crisis.
Modernization of this industry has removed the personal aspect of the relationship between the consumer and his banker. Only clients in our Private Banking and Wealth Management channels still see the benefit of a dedicated financial consultant. This is the way the world will continue to evolve. The same is true in the medical profession. Navigating this new world requires a more educated consumer, and improved education with respect to conservative personal financial practices is the only way to keep Americans equipped to handle the onslaught of "opportunities" that they will be presented with on a daily basis.
What would the best solution be to help homeowners recover from the impacts of their bad loans, without spreading that benefit to the lending institutions? I haven't come up with a good solution. I don't think that granting everybody a free "do-over" is the way to fix this.
Yeah, unfortunately, doctors have become and are still becoming less trustworthy, too. However, they are at least legally required not to act to your detriment. They can't prescribe a higher dose of a drug than is safe for you, just to sell more of the drug. That's essentially what a lot of loan salesmen were doing.
The thing about encouraging consumers to go back to "conservative personal financial practices" is it's bad for the economy -- the post-WWII economy, anyway. The more times a given dollar gets turned over, the better it is for the economy. (Multiplier effects and whatnot.) Our whole economy is based on consumer spending. If the message is that consumers need to cut back on spending, and they do it, there will be a contraction in the economy that'll make this current mess look like spilt milk.
I'm not saying I necessarily think that's a bad thing. Or an all bad thing, anyway. I'm just saying it's going to involve significant short- and medium-term pain, job losses, economic displacement, stock drops, GDP shrinkage, etc.
As to your last question, I'm not really looking for a way to make that clean differentiation. I'm just saying that if we're going to bail out the lenders, we ought to throw some help at the lendees, too. Maybe restructure the loans so they can afford their monthly payments, but they can't then get a windfall from it when the house reacquires normal market value in 10 or 20 years.
BTW, I see mentions of "the Swedish model" around the the intertubes, but don't know what it is. Any thoughts on that?
I was all over the financial news yesterday, and never heard mention of a "Swedish Model" with respect to this crisis. If I had to guess, it probably was thrown out by somebody against the bailout plan, who was saying we were headed toward the ultra-high income tax rate they have in Sweden. Just a guess, though.
Part of the bailout plan included help for the borrowers in these bad mortgages. Once purchased, the government was going to give significant leeway to eliminate the burden on the individual borrowers. For example, for a set of subprime ARMs, they may choose to fix the rate. For a bundle of mortgages with 3-2-1 Buydowns, they may choose to honor a reduced overall rate. They may choose to extend the loan term, or extend the interest-only period. Many of these concessions go above and beyond anything the private lenders would have been willing to make, because they don't want to take such a heavy write-down on their books. No need to point out the irony that, by foreclosing, they ended up taking much larger write-downs.
"Larry you have to read the bill. It's very clear. The Bank of
Shanghai can transfer all of its toxic assets to the Bank of Shanghai
of Los Angeles which can then sell them the next day to the Treasury.
I had a provision to say if it wasn't owned by an American entity even
a subsidiary, but at least an entity in the US, the Treasury can't buy
it. It was rejected.
The bill is very clear. Assets now held in China and London can be
sold to US entities on Monday and then sold to the Treasury on
Tuesday. Paulson has made it clear he will recommend a veto of any
bill that contained a clear provision that said if Americans did not
own the asset on September 20th that it can't be sold to the Treasury."
http://globaleconomicanalysis.blogspot.com/2008/10/rep-brad-sherman-on-bailing-out-foreign.html
Comments
Think about your father or grandfather, would they have signed a loan for a house without reading and understanding what it meant? I know my father and grandfather would read and do read every word, I know I read every word, but I've been called paranoid more then once.
We don't expect people to understand every word of a will or a contract or a medical chart, nor would it be reasonable to. People go to specialized schools for years to learn how to write, read, and understand those things. Laymen who need legal or medical services cannot be expected to just pick those documents up, read them and understand them. Mortgage paperwork has become the same way. It's too complicated and too loaded with technical jargon for most laymen to understand. It's too complicated and too loaded with technical jargon for most people in my grandfather's day to have understood, too.
That's why, turning to your conclusion, duty, I don't quite agree with you. To a certain degree, a lot of people with bad mortgages are in that situation because the rules of the game changed -- i.e., bankers went from trusted advisers to loan salesmen trying to meet a quota -- without anybody telling them. I'm not ready to just throw those people to the wind.
True, it is hard to understand some of the language in documents today, I guess I have somewhat of a nak for it but the stuff I don't understand I take to a consultant. eg. a lawyer or someone that I am paying to advise me and will get no benefit from "walking around the truth". To me doing that is common sens and I guess sometimes I forget that what is common sens to some, is not to all.
I agree that loan programs have become a lot more complex than traditional loan programs. But then that leads me to my next question -- where were the attorneys in all of this? Why is an attorney required for the closing in the first place? You don't NEED an attorney to be present in order to create a binding agreement. The attorney is there to ensure that proper procedures are followed, and to guide people through the process while explaining to them exactly what the terms mean. The attorneys that did every closing I've been to over the years have been very thorough in explaining these things.
It is likely that an uneducated couple going to their first closing will be quite overwhelmed by the whole process. The attorney is there to address this, facilitate, and to ensure that all parties understand the transaction that is taking place. Obviously, the closing table is the wrong place to become educated about the terms of the agreement, and many overwhelmed buyers would undoubtedly be too intimidated to ask questions at that time.
The bill could potentially be improved to include legislation requiring earlier engagement from a real estate attorney. Many of the federal and state-level government-funded lending programs include mandatory borrower education requirements that must be met in order to qualify for reimbursement or re-sale on the secondary market. You could restrict the complexity of lending programs. All of these things potentially add layers of oversight to the market, and increase the cost of making loans.
But where do we stop in regulating the way people spend their money? In general, the public is not putting enough money into savings for retirement. In general, people are carrying balances on their credit cards (and some are even carrying outrageously large balances). The credit world always continues to push the envelope. Economic growth is built on our ability to expand the parameters guiding the credit market. Credit itself is a risky proposition, for the borrowers and the lenders. People will always make stupid decisions with their money, so where do we draw the line in preventing them from doing so? Laying the blame at the feet of the lenders, and letting the borrowers go free, fails to teach a lesson in the same way that bailing out the lenders would fail to teach a lesson. A lot of uneducated amateur day-traders took a serious beating playing the stock market. Nobody bailed them out when the bubble burst. They learned a lesson, picked up the pieces, and moved on. Borrowers facing foreclosure will do the same thing.
That said, we certainly can talk about whether bank customers should be entitled to the same expectations they are legally entitled to when they go to their doctor or lawyer's office. Personally, I think it'd be better for all concerned -- customers, banks, the market as a whole -- if they were, but I could be wrong about that. Regulation can create and invigorate markets as well as burden them.
When my father (an anesthesiologist) retired, he built a beautiful home on a lake in South Carolina. On one visit, we were riding the boat around the lake, admiring the views of the mountains in the distance, and looking at all the enormous homes that the wealthy had built in some of the more exclusive areas of the lake. We stopped outside an enormous estate that took up an entire peninsula. This estate featured a gigantic house on top of a hill. Also on the grounds was a smaller house (still larger than my father's house). The entire property was protected by a large brick wall around its perimeter.
My father pointed out that the wall itself (exclusive of the two huge homes) was worth more than my father's house. The owner, he explained, only lived in this house (his primary residence) for a couple months of the year. The remainder of his time was spent travelling the world. The smaller house was occupied (sparingly) by his daughter. The source of his fortune? He was an executive for a drug company. He rhetorically asked, "where do you think the money is these days in the medical profession?"
When I used to go to my neurologist (I haven't been there in years), I had ample time to look around as I waited for my (alarmingly brief) appointment. Everything was sponsored by the drug companies. I was started on Avonex, but at my last appointment, my doctor wanted to switch me to Rebif. My course with the disease had been a remarkable success on Avonex... but Rebif had become the brand on everything in his office. After a discussion, he agreed to keep me on Avonex, although he did mention that most of his patients would be switching treatments. I haven't been back because I don't trust him to do what's right for me as a patient. Most other patients, as evidenced by my rather informal surveys of fellow patiens on my annual fund-raising walk, have switched to Rebif with varying degrees of success. It's just as much as business as lending, and doctors are salesman as much as the mortgage brokers.
Also, "Loan Officer" is the title given to the employees of the bank who originate mortgages on behalf of the bank. "Mortgage Broker" is the common name used for the 3rd parties that originate mortgages through our wholesale lending. The loan officers work in the bank branches (or through our telephone-based "LoanLine" channel). They understand the product offerings and tailor the loan to meet your needs, in much the same way as a traditional bank lender-borrower relationship. Mortgage Brokers act on behalf of the borrower to find the best deal. Their livelihood depends on their ability to originate large volumes of loans. The loan officer originates a mortgage as just one part of his/her daily activities, and does not have nearly the level of incentive to hard-sell these products.
With the government taking back control of Fannie and Freddie, you will immediately see better oversight of the offered programs. These programs drive the offerings of the lenders, because Fannie and Freddie are far and away our biggest investors. Privatizing Fannie and Freddie was a mistake, and no doubt a contributor to the crisis.
Modernization of this industry has removed the personal aspect of the relationship between the consumer and his banker. Only clients in our Private Banking and Wealth Management channels still see the benefit of a dedicated financial consultant. This is the way the world will continue to evolve. The same is true in the medical profession. Navigating this new world requires a more educated consumer, and improved education with respect to conservative personal financial practices is the only way to keep Americans equipped to handle the onslaught of "opportunities" that they will be presented with on a daily basis.
What would the best solution be to help homeowners recover from the impacts of their bad loans, without spreading that benefit to the lending institutions? I haven't come up with a good solution. I don't think that granting everybody a free "do-over" is the way to fix this.
The thing about encouraging consumers to go back to "conservative personal financial practices" is it's bad for the economy -- the post-WWII economy, anyway. The more times a given dollar gets turned over, the better it is for the economy. (Multiplier effects and whatnot.) Our whole economy is based on consumer spending. If the message is that consumers need to cut back on spending, and they do it, there will be a contraction in the economy that'll make this current mess look like spilt milk.
I'm not saying I necessarily think that's a bad thing. Or an all bad thing, anyway. I'm just saying it's going to involve significant short- and medium-term pain, job losses, economic displacement, stock drops, GDP shrinkage, etc.
As to your last question, I'm not really looking for a way to make that clean differentiation. I'm just saying that if we're going to bail out the lenders, we ought to throw some help at the lendees, too. Maybe restructure the loans so they can afford their monthly payments, but they can't then get a windfall from it when the house reacquires normal market value in 10 or 20 years.
BTW, I see mentions of "the Swedish model" around the the intertubes, but don't know what it is. Any thoughts on that?
I was all over the financial news yesterday, and never heard mention of a "Swedish Model" with respect to this crisis. If I had to guess, it probably was thrown out by somebody against the bailout plan, who was saying we were headed toward the ultra-high income tax rate they have in Sweden. Just a guess, though.
Part of the bailout plan included help for the borrowers in these bad mortgages. Once purchased, the government was going to give significant leeway to eliminate the burden on the individual borrowers. For example, for a set of subprime ARMs, they may choose to fix the rate. For a bundle of mortgages with 3-2-1 Buydowns, they may choose to honor a reduced overall rate. They may choose to extend the loan term, or extend the interest-only period. Many of these concessions go above and beyond anything the private lenders would have been willing to make, because they don't want to take such a heavy write-down on their books. No need to point out the irony that, by foreclosing, they ended up taking much larger write-downs.
http://abcnews.go.com/Business/story?id=5921473&page=1
http://www.msnbc.msn.com/id/26905351/
http://www.sacbee.com/102/story/1280750.html
"Larry you have to read the bill. It's very clear. The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn't owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can't buy it. It was rejected.
The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can't be sold to the Treasury."
http://globaleconomicanalysis.blogspot.com/2008/10/rep-brad-sherman-on-bailing-out-foreign.html
On top of all that the almost silent $25bil to the auto makers.
http://online.wsj.com/article/SB122281787423492359.html