Read All About It — If You Can
February 19th, 2008
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One of the great debates of our time concerns the matter of who is “responsible” for the mortgage meltdown. Some blame lenders and “Wall Street,” some blame borrowers and some blame regulators. (I’m in the camp which says there’s a lot of blame to go around….)
Happily with FHA mortgages borrowers have a generally-good idea of what they’re getting — a loan with a prepayment penalty, a mortgage that requires strong documentation, a loan with little down and, most importantly, a loan without a lot of complications.
One of the arguments assigning blame to borrowers goes like this: They knew what they were signing.
Actually, I’m not sure that borrowers have a clue. Now Bob Allen in Kansas City provides an interesting bit of evidence to support my perspective: Writing on the blog of the Kansas City Star, Mr. Allen says:
“Suppose you go to LendingTree.com, fill out the initial application, and then actually read the disclosure documents before submitting your loan request. Do you know what you have in front of you?
“Sixty-two pages of legal text, 2,300 lines, 474 paragraphs, 19,361 words.
“Thank goodness for lawyers and politicians for providing us with ‘truth in lending.’”
I don’t think this is a concern which is limited to any specific party, but Mr. Allen’s note does illustrate a point: When loans are made in “the lender’s usual form” — and all loans are made in the lender’s usual form — how are borrowers supposed to understand forms and disclosures which rival much of David Copperfield in terms of length and complexity?
Here’s a question for borrowers: Have you read all the disclosures associated with your loan?
Here’s a question for loan officers: Have you read all the disclosures?
For the full posting by Mr. Allen, see: Mortgage crisis
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February 23rd, 2008 at 6:07 pm
This is exactly right. I am in the camp that says the order of blame goes as follows:
(1) Mortgage Brokers. Borrowers entrust their mortgage brokers to explain, counsel, and assist in the loan process. All too often, a mortgage broker simply peddles loan applications to and from borrower to lender, trying to close the loan “at all costs.” This mentality has led to tragic misconduct on the part of mortgage professionals whereby they intentionally misstate information on a borrower’s loan application, try to convince the borrower that misstating information on the loan application is “legal” and “customary,” and/or flat misrepresent the way the loan works.
(2) Lenders. The underwriting departments of certain lenders simply turned a blind eye to the problem. Come on, did they really believe everyone made $15,000 per month and could afford a $500,000 mortgage!?
(3) Borrowers. To the extent the borrowers actually knew what they were doing. Often times, however, the borrowers are innocent bystanders who go along with whatever their mortgage professional tells them to do.
For what it’s worth, this is my $0.02.
February 28th, 2008 at 10:22 am
Can I get an FHA loan direct from government without a mortgage broker if so how?