Couple Living in Camper After Foreclosure - Is it the Lender’s Fault? You Decide

While I don’t think that lenders should be putting out all of these high risk loan types, I don’t think that really any of this is their fault. It is the borrower’s fault. Plain and simple. They signed on the dotted line, and if they didn’t understand the loan documents, or the terms they were under they needed to find someone who could explain it to them. It is their responsibility.

There is a proverb that says the borrower is slave to the lender, and that is certainly holding true with the foreclosure crunch, especially for those who didn’t go in with their eyes wide open.

Pete, I agree. And I like the fact how the lady doing the interview even said, “but you signed on the dotted line” and “did you read all of the fine print…” Of course, they admitted that they didn’t, and they just “trusted” the lender.

Well, I don’t think being naive is an excuse either. These people are salesmen, just like anyone else trying to get you to buy something. People love to rip on car salesmen, and how many would just trust anything a car salesman says? Yet, when you have the biggest financial decision of your life on the line, you blindly believe what a loan salesman is telling you?

There is nothing wrong with 0% down on house, especially for young first time buyers.

ONLY IF they are not over extended and buying within their price range.

My first house was 0 down, but not too big for my pay. (I was single)… the bank thoroughly went through my funds, my budget i had setup etc. Now this was 15 years ago.

If banks do their job in evaluating the viability of the loan and carefully go over the clients ability to pay. Go for it.

if they just give a loan to ever tom, dick and harry then the banks get what they asked for.

This is, ultimately, the best outcome for the borrowers. Their credit will be trashed, so they won’t be able to use it. They’ll have to live on a cash basis. That’s a benefit. Their housing situation will be flexible and mobile and relatively low cost. That’s a benefit. Their retirement planning will no longer be waived away into the nebulous place of home equity. Instead, they’ll have to start saving, and perhaps investing, for real. That’s a benefit. Not just for them; but for their family and friends, and for their nation, all of whom hopefully will not have to assist the borrowers with gifts and entitlements.

I envy their position. Never having to worry about debt or credit reports again. Being free to move around this great country, as their job(s) and interests allow. Able to dedicate time and energy toward learning about financial stability, growth, and ultimately freedom.

I think living in a trailer is unduly stigmatized. Plenty of folks do it quietly and happily, financially sound and environmentally low impact. These folks (the former borrowers in the news piece) are on the right track, even if it doesn’t seem that way to them right now.

I would place most of the blame on the borrower. It seems they made one bad choice after another. Nobody twisted their arms to sign the paperwork. If I just “trusted” everyone out there who tried to sell me something, I would be in pretty bad shape.

Not understanding the terms of a mortgage isn’t an excuse. They should of asked for clarification on points that weren’t clear. You don’t leave one of the biggest financial decisions of your life up to someone sitting behind a desk.

Follow-on comment regarding blame. It takes two parties to make a financial transaction, so the blame is equally shared between them for any adverse outcome. Funny thing is, though, we don’t hear the lenders out talking to the press, complaining about how the borrowers screwed them. Either the lenders write this kind of thing off as the cost of doing their business, or they are in pain and just can’t get anyone to report their story to the press.

I’d like to see some press reports from the lender’s perspective: on how ill-informed, hyper-consumer buyers take on whatever debt they can to get a Dream(tm) house, don’t do their homework, and sign anything their loan officer friends put in front of them. “These buyers are ruining the American Dream(tm) for the rest of us!”

On the other hand, I wouldn’t mind seeing the bulk of the retail lending industry go under in the most spectacular, painful, and tragic way possible: not enough reliable borrowers out there to make the business any more profitable than other more rewarding lines of work!

You bring up a good point, Steve. It does take two to tango. And many lenders were simply giving people what they wanted. People feel so entitled to live the American dream at almost any cost, these companies were simply giving people what they wanted.

And we’re hearing all of these stories about people ruining their lives with a mortgage, but what about all of the people out there who buy over $150,000 worth of new vehicles (that depreciate rapidly), buy boats, and have all sorts of other dreamlike possessions that can do far more damage than simply buying too much house.

Most of these problems stem from lifestyle choices that may include a bad mortgage or too much house, but there are many other expenses that come with “The Dream” that are just as much to blame IMO.

Since when is it the responsibility of the lender or loan officer to play the role of financial planner and counselor. Lenders pull your credit, verify employment, and gather a host of other financial information about you, but they aren’t doing it in order to advise you in your purchases and other financial decisions. They’re doing it as a means to assess the risk of lending to you (how much and at what rate).

The lenders have done a poor job of assessing this risk and they’re paying the price right now. But it’s never been their job to make sure you were making a good decision. That’s just absurd. People need to take responsibility for their own actions (or lack thereof).

I saw this on CNN yesterday at lunchtime and spent about an hour ranting about it to my husband last night. These people just wanted a really big house that they couldn’t afford and were willing to live in total financial denial to get it.

The bottom line for consumers is, if it seems too good to be true, it probably is.

Suzy
http://www.allaroundktown.com

I think there is a cultural disconnect. A lot of consumers assume that if someone is going to lend them money, that means they are validated as being “worth” that amount, or, they have a prayer of paying it back.

This assumption is dead wrong and for some reason - likely the lenders - this assumption is encouraged. It can be as simple as “congratulations! you qualified for a credit card with a 30,000 limit!”.

Now that is not to say I blame the lenders. I blame the borrowers if not more so, because they assumed if this credit was extended to them, they would somehow be able to make the payments.

Bottom line - lenders don’t have the borrowers interest at heart. They just want the “interest” otherwise why would anybody lend money. This goes for every form of debt, from credit cards to cars to houses. The smarmy used car salesman and the wariness people apply to them should be extended to house purchases as well.

Both parties are to blame. People need to be financially responsible and know their limits. I know its the American Dream to buy a house and keep getting money from lenders, but of course, the money has to be paid back.

Its also the responsibility of the lenders not to lend to risky borrowers. Then again, lenders don’t care, its not their money and they want to make a quick buck.

I read an article way about in NYT on how a woman used her HELO to purchase cars, furniture and when her house got foreclosed, she screamed at the lenders.

Maybe its our lifestyle - we all want bigger and better things but do not take into account the risk that comes with it? I sometimes wonder what our generation (I’m 26) is doing as far as retirement. It will be interesting to see in the next 10-20 years.

(and of course, there are the smart onse who live responsibly and within their means)

There’s a third party in this equation that hasn’t been addressed, really: the mortgage broker.

Y’see, it’s not the bank’s fault for making a no-money-down loan available–that’s a legitimate financial product that has been used by many effectively.

Okay, the borrowers really screwed up, that’s for sure. Buying a house without reading the paperwork? Get real. Pop a hundred bucks and have an attorney look it over if you don’t want to do it yourself, or ask your insurance agent or stockbroker or accountant to look. Don’t have one of those? Ask one anyway, they’ll probably do it for free or next to free.

But do not leave out the mortgage broker–the sales representative–the “loan guy” — the knowledgable industry person who took a legitimate product and applied it for an illegitimate purpose, knowing full well that consequences could be severe for the client.

The mortgage broker, who allowed (and quite possibly encouraged) the homeowners to “just sign here and here” and not read the paperwork.

The mortgage borker, who wrote the loan, got paid the commisison, and is now completely out of the picture.

So here’s my summary–
Whose FAULT is it? The Borrower and Mortgage Broker.
Whose PROBLEM is it? The Borrower and Bank.

I’m not sure that it matters that much who is at fault. It’s easy to see who has lost the most, and it’s the borrowers. Whilst the bank may have lost money, the home that a family lives in is rarely simply a monetary investment. If they are more to blame, they’ve probably be duly punished and you can get back on your high horses.

Let’s not forget that it really isn’t the mortgage that put these people under. Sure, getting an interest only mortgage is not the wisest financial move you can make, but as long as you can make the payments and don’t plan on moving, it is a perfectly acceptable type of loan. Not something horrifying that’s automtatically going to push you into foreclosure like the media suggests.

This couple went under because of a) the job loss, and b) the loads of other debt they piled on after the job loss.

Most families would struggle to pay the mortgage after a job loss. The exact wrong thing to do is take out loan after high interest rate loan to cover your shortfall, creating a snowball of debt that will eventually roll over and crush you. (The right thing would have been to get another job ASAP even if it was valeting cars temporarily, borrow money from family, liquidate savings, etc. NOT the mortgage company’s fault those borrower’s didn’t/couldn’t do those things).

PS I’m sick of hearing about how complicated loan documents are. I’m a lender and I can barely read them, much less understand it all. The lawyers who drew them up can read them, but no one expects the consumer to show up to the closing and actually read the 200 page pile of small print docs in front of them, much less understand it - and that doesn’t make anybody dishonest or irresponsible or naive. You SHOULD trust your lender/broker to have explained the things you need to understand long before you get to the closing.

What you need know are your INTEREST RATE and your AMORTIZATION SCHEDULE/TERM (i.e. what your payment will be and if/when/how it could change). Most of the paperwork you sign at closing doesn’t even address those things, anyway, and they should have been explained/chosen by you long before any documents were even drawn up.

When I bought my first house, I made sure I brought someone along that knew what was going on, which was my Dad. When I signed up for a mortgage, they gave me all the details right to my face. I signed up for a fixed rate and knew what my payments would be.

Its up to the buyer to look down the road and see what their payments are going to be. I think so many of these people KNOW what they are going to pay in the future and they just figure they will deal with it when the future comes. I think so many people don’t think for the future and just live for the present. It’s really a shame.

This story is so COMMON - I cannot tell you how many people that I know who are one or two missed paychecks away from being in REAL financial trouble.

1. Why would you by a 1/4 million dollar home when you don’t have the discipline to save up a down payment?
2. $300,000 at 8% for 30 years would be about $2200 a month. This isn’t ‘chump change’. Before going into this kind of debt, you need to OVERESTIMATE the payments, and understand if the payment is going to skyrocket.
3. Banks are in the business of making money, not helping people.

NCN

They could have made it if it was not for the HELOC, however most people get approved for something they get so excited that they don’t question on HOW they got approved.

“The right thing would have been to get another job ASAP even if it was valeting cars temporarily, borrow money from family, liquidate savings, etc”

I agree with Meg. Take a job even though it’s not in your field. Borrowing money from a house to pay it right back to the lender. That is foolery!.

What did that Circus guy say;”There’s a sucker born every . . .”

When I bought my home ten years ago, there was no question about hiring a lawyer to go over the documents and represent my interests at the closing. People who are unwilling or unable to protect themselves are always going to fall prey to those who will take advantage of them.

I think a huge part of the problem is that people do not understand how interest works; i.e., if we were to assume a simple calculation of $1800 for the principal and interest over the 30 year span of a standard mortgage to pay for this house, with $0 down, the total cost after 30 years would be $648,000, with the interest totaling $383,000. I did this calculation constantly when I bought my house and after, and it made me so uncomfortable that I paid extra on my principal monthly until I finally paid the whole thing off.

You also have to think about property taxes. A modest estimate on a $265,000 house is about $4,000. Divide that by 12, and you have to cough up another $375 per month. Add that to your mortgage payment of $1,800, and you are now at $2,175. And that will go up every year, property taxes are not fixed. And you can bet if your property value doubles, your property taxes are going to rise accordingly.

This is real money going out the door every month. Plus you have to live: utilities, transportation, food, insurance, etc. People should be required to fill out a worksheet prior to taking on a mortgage, and all of their real expenses need to be listed.

I will agree that the couple were responsible for signing on the dotted line. However, I also believe that is where their responsibility ends. Simply signing your name on a piece of paper does not justify someone else cheating you out of your money. And if a lender issues a loan with predatory terms, that lender is cheating the borrower.

I believe that a person making a bad decision does not absolve any other person of responsibility for then doing something bad to the person who made a bad decision. For instance, a young woman who gets drunk at a frat party is making a bad choice because getting drunk is a bad choice. But if she is raped she is not responsible for that occurrence–instead, the rapist is. In fact, the rapist has a greater responsibility to not rape the young woman than the young woman has to not get drunk.

Similarly here. The borrowers had a responsibility to not get themselves in over their heads with their finances. However, the bank has a greater responsibility to not offer predatory terms. The bank will make money regardless, whether it offers an ARM or a fixed-rate, and whether the interest rate is six percent or nine. It doesn’t *need* to offer predatory terms. The couple, however, need a home.

I question what is going to happen to us as a society if we continue letting abusive people and institutions off the hook for their part in a bad situation just because their victim was naive or trusting. We are *supposed* to be able to trust one another. Why is that supposed to be a character flaw? Why does it make it OK for a person or an institution to be dishonest and calculating and abusive in return?

Fairly, the couple should lose the house. (Dude. I would have sold the thing when it doubled in value, assuming no prepayment penalty, and then gone and bought a house for cash! Depending on where you live, yearly property taxes can be way lower than either rent or a mortgage payment.) And that will teach them to be more discerning about financial transactions in the future, since in the present cultural climate of letting predators and sociopaths off the hook, obviously we can’t expect lenders to become honest and forthright anytime soon. However, banks should not be bailed out of bad loans. Furthermore I think they should face some kind of censure. I’m not sure how far I would take it, because the financial health of this country is on the line and the last thing we need are crippled banks, but the trouble is, they know that. So I’m stumped.

Oh, and I meant to say, I understand the sentiment behind the proverb “the borrower is slave to the lender.” However, I would like to point out that slavery is not a voluntary condition–the slaveowner must take the slave captive, and keep him that way.

Borrowing is not inherently enslaving, but the terms can make it that way. And I understand why Judaism and Islam forbid the charging of interest–not that interest is inherently oppressive, but that it is so often made to be, and if lenders aren’t going to voluntarily control their appetites, then maybe their actions should be severely curtailed.

I’m not about to give up my savings account or the possibility of a retirement fund but this is all certainly food for thought.

I think that both parties took on a certain amount of risk when they did the original deal. I agree with a previous commenter that buying with zero down is not always a bad move (although it is in most situations).

Given that the house doubled in value and they increased the payments, I’d have to blame the borrowers for getting themselves in a really bad situation.

Mike

This stories are always so lopsided towards the former homeowner. I would love to see the all the Doc’s they submitted, and who pushed a interest only loan. While many brokers and mortgage companies cold-called people many people also went looking for this loans because the payments were low.

Having worked as a notary loan closer for several years supervising the signing of loan documents such as this, I can tell you that most people don’t understand these loans. As a notary, I work for whatever mortgage company subcontracts me and I am not allowed legally to give advice and I grew to hate doing them. I saw people taking the one percent interest loans that were only one percent for 30 days before adjusting to the prime plus rate. Of course their payments stayed the same for years and the extra interest got tacked on to the principal. Most people had no clue what they were signing. Most of these were internet deals where the borrower got a cold call or a letter in the mail promising a $250 a month payment on a 250,000 loan.

Who is to blame? I really think in a lot of cases it’s the lenders who promise the world and don’t explain the consequences. Should homeowners be more educated? Yes, they should but where does one get this education? Most of us trust the professionals that we are paying to advise us…. at least until we get burnt.

it’s the borrower. just because someone provides something, doesn’t mean you have to buy into it. you walk by stuff every day that people allow you to buy, do you buy it? absolutely not.

the lender is stupid for not having done the proper risk assessment on the loan, but that didn’t force the buyer into signing on the dotted line. free will.

I agree with a lot that has been said. In the end it is every individual’s responsibility to cover themselves. If it means educating themselves to the details of the loans or keeping a cushion of cash for emergencies.
People cannot go through life blaming everything bad on someone else. The only way to get ahead is to Take blame and learn from your mistakes.

I don’t think that borrowers are making any worse decisions than they’ve made in the past. It’s just that real estate isn’t the “easy” investment that it once was. The fact that everyone, even people in loans they couldn’t really afford, were turning big profits made it look like a sure thing. It’s easy to make money in a rising market, even if using poor methods. Now that the market has soured, those who made poor decisions are starting to see the consequences. Borrowers weren’t complaining when they got these types of loans and were making money. Crying foul now that they are losing money seems rather childish. Clearly, the banks deserve some of the blame as well, as they too got too comfortable with the rising market. Defaults and lost profit is the price they’ll pay. For the borrowers, most of their troubles are self inflicted and it’s time for them to take some personal responsibility. Even if their loans were forgiven, continuing to live beyond their means would probably land them back in the same place.

I don’t know whose fault it is, those home owner’s made a bunch of foolish moves, but if they were an investment bank, the government would have bailed them out, since it was better for the economy

Having bought a house I was aware of my rate and payments. If there was something I had a question I asked. There was a lawyer present at the closing as well. People are going to get themselves into a financial mess not matter what. I just don’t think the government should bail out people. It is the people’s fault for buying a house that was too expensive. Too many people live by the “keeping up with the Joneses” syndrome. What is wrong with living in a smaller house with payments that people can afford? Why not start off with something one can afford, then put some $$ away, get rid of the credit card debt (as well as the other debts.) They live in a trailer? Boo Hoo! It could be worse…how about a cardboard box??

Aren’t we crying over spilt milk? I think at this point blame is pointless… but rather we should be looking at prevention and clean up. I am appalled by the number of homeowners who are thinking that just walking away from their home is the solution.

I was not going to post to this , but I think I must.My husband and I took a loan to get the credit cards off our backs(my fault) The house was free and clear. we had no mortgage. He had a succesful constuction company for over 25 yrs. I worked as a teachers aide for years. So we could pay the loan. Then his company folded, and I got sick and lost my job. We did not want more than we could afford, we just wanted to stay in the home we have had for many years.Now he works at a big box store, making little money compared to his construction Co. And we are out of the house (foreclosed) in 3 weeks. I hope this puts perspective on the issue. I am a woman who has worked for many years along with her husband, and we did take out a loan we did not understand. But we know we are all to blame. So all of you that throw blame around… walk in someone elses moccosins..

Let’s say lenders wouldn’t or couldn’t make these kind of risky loans. Then where would this couple be?

Living in a trailer, paycheck to paycheck.

So why do we feel bad about it now? They had a nice vacation where they got to experience what life is like for responsible adults.