The NY Times has a piece out this week titled Borrowers Refuse to Pay Billions in Home Equity Loans that has some really choice quotes from frustrated lenders. The piece is written from the perspective of lenders who are dealing with extraordinarily high levels of home foreclosures. They’re not happy.
Here’s an example quote:
“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”
That sounds pretty balanced. The lending market was certainly irrational. However, Combs loses me with his next quote within the piece:
Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”
I have a lot of problems with that quote.
1. Mr. Combs, the people foreclosed upon don’t have 90% of a house to show for it. They have no house. Working off the $300k figure you used, they probably paid around $1900/month on a second mortgage for years, fell behind, lost their house and ruined their credit.
2. Mr. Combs, lenders were so greedy (or incompetent, or both) that they were willing to offer loans to people who were not in a position to repay them. While you seem to prefer to blame the victim, I would hope that you’d understand that the lends had the information advantage. People working in lending on a daily basis convinced borrowers to take loans they had little chance of repaying. Would you, personally, have lent $300,000 of your own money to someone making $80,000/yr to pay for recreational toys? My guess is, probably not. So you understand the risk that these loans would default, yet you still blame the victims.
3. Mr. Combs, if you were a bit more introspective in your take on the hosed up lending scene, I would expect to see a quote more like this: “We lent money to people who had little chance of repaying it. It turns out that they couldn’t (but we got paid when we convinced them they could!). Now we’re recouping 10 cents on the dollar from this crap that we sold to people. We really were that stupid.”
4. Mr. Combs, borrowers screwed up by overextending themselves, but borrowers know less about lending than . . . lenders. If you’re looking for one person to blame for the high levels of defaults, I think you really need to consider looking at who had the information advantage in this market, abused it, and is not blaming the victims. Find yourself a mirror.