Sunday, April 6, 2008

"Responsible Lending"

Over the weekend, I attended a function that included lunch. At the table behind me, I overheard 2 people talking about how several friends were in tight spots with their mortgages. That didn't surprise me, but as their conversation developed, I was dumbfounded when the blame was placed entirely on the mortgage lenders.

I'm not saying that mortgage lenders weren't making bad loans, but at some point, don't the consumers have some responsibility to read what they're signing? Didn't we all grow up hearing things like "let the buyer beware", and "if it sounds too good to be true, it probably is!"?

The conversation touched on the fact that the lenders should have told people this or that. No mention of the obvious - that the lenders don't work for the borrowers, the lenders make their money from the borrowers. If the borrower (customer) wants someone "on their side", they need to (and should!) hire a real estate attorney to look over the contracts before they sign them.

The lenders were irresponsible - to their share holders. Those are the people they have a responsibility to. They were irresponsible because they sold people more than they could afford. Really, the lenders are responsible for figuring out how much they can get out of a borrower without forcing the borrower into default. If that means the borrower eats nothing but ramen noodles and rides a bike to work for the duration of the loan, it just means that the lender got the best deal they could for the people they ARE responsible to - the aforementioned shareholders.

The person that is responsible for making sure they don't spend more than they can pay is the borrower.

The thing I find truly scary about this is that I'm a complete idiot when it comes to money and finances. I've just recently figured out how to actually make a budget, and even I know the basic rule "don't spend more than you have". How much worse off are these hundreds of thousands (millions?) of people that are caught in the mortgage crunch if even a self-acknowledged "financial idiot" knows more than they seem to?

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