The Fault of Default

This article makes me sick:

http://news.yahoo.com/s/afp/20070325/bs_afp/useconomypropertypolitics_070325063724

I don't know how long it'll be active, so let me summarize. Mortgage companies are foreclosing and people are losing their homes. What makes me feel ill is that it's the fault of everyone involved, but they're all going to blame each other.

Let's start with the obvious: the mortgage companies are at fault for charging interest rates that should be criminal. The entire business of mortgage loans borders on usury, and it's clear that they don't want you to own a home so much as they want you to pay them for it for 30 years. That's the nature of big business. And we're supposed to feel sorry that some mortgage companies lost up to $15 million in mortgage-related deals last year. Gee, they only took in a few hundred million in profits after overhead expenses. Poor guys. They should just get out of the business, since it's so bad for them. Oh, but I forget -- those mortgage companies are dedicated public servants, doing us all a favor offering us such nice loans. Why, they're practically giving us our houses for free. No matter how much they complain about all that money they're losing, they'll stay in the game. To help us. To help you, worthy citizen.

Now why don't you go call your lender and say "thank you"?

Anyway.

We can't just blame mortgage companies. The government facilitates the problem, and for several reasons. For one thing, extreme overregulation of the home-building industry, combined with the inability of people to truly own their own land, makes it basically impossible to save money by avoiding the mortgage companies. Example: my friend Bill tried/is trying to build a home. From what I understand he is a competent building-fellow. And I think we would all understand if a few regulations existed to ensure he wasn't building a toxic waste dump, or wiring the house to explode.

Unfortunately he has been beaurocraticked into the ground. He is not a "liscensed and bonded" construction company, incorporated and paying all the Big Boy taxes such companies have to pay in order to grease the wheels with the local heehaw authorities (who, in my opinion, are still better to work with than the metrosexuals that operate towns like Manassas and Alexandria). His choices, therefore, are either to take out a loan to pay a construction company to build his house, take out a different kind of loan to become his own construction company, or take out a more different kind of other loan to just buy an existing house.

Whatever path Bill chooses, he's stuck with a high-interest loan from a mortgage company, or more accurately, a company that offers different types of loans, including mortgages.

My own fiasco with the town of Front Royal is bad enough: to put in a stupid T-wall upstairs I was required to rewire my house, and have four different contractors come and give the town's stamp of approval.

On a T-wall.

At least they let me do it myself, or more to the point, hire whomever I wanted to do it. And believe it or not, given the current state of things, they are generous to do so. Because of ridiculous federal laws and regulations, the town is partially responsible for what happens if my house collapses from being improperly built. It's a wonder they don't force me to use only "government-approved" builders for my twenty feet of drywall. Never mind that far fewer tax-payer dollars would be spent clearing away collapsed houses (assuming the owners couldn't pay for the clearing) than is spent on the staffing necessary to regulate the construction of every single piece of wall in every single structure ever built anywhere in America.

The government's other fault in this is in letting terrible mortgage and loan laws exist, especially the ones allowing front-loading of interest. I think I can speak for every American that doesn't run a mortgage company when I say that we would be perfectly happy with smaller, more numerous mortgage companies than fewer huge ones. That's what you get when you allow them to charge ludicrous amounts of interest, force you to pay it all up front based on the assumption that you won't pay it all in the long run so you have to take all the risk, and then buy out smaller companies and basically become oligopolies.

Now perhaps you blind-eye conservative types may claim that "capitalism works!" Well yes, it does, in theory and sometimes in practice. And I'm all for capitalism. But in this case, as in many others we could name, the system has run amuck. It needs to be deregulated in some areas, and more stringently regulated in others. We are, after all, talking about houses, where people live. The pure essence of capitalism, competition, should be facilitated, while the unfair business practices that creep in from time to time should be removed. Since they haven't been, it turns out that pure capitalism in the mortgage market doesn't really exist. Certainly companies can offer various types of loans and compete on those grounds. But what would happen to a company that offers a much lower interest rate, or didn't front-load the interest on the loan? Even within those different types of loans, what if someone offered a 17-year-fixed, or a 22, or a 35? Is any of that even legal?

By no means should mortgage companies assume all the risk. But if we consumers are expected to assume most or all of it, the government should at the very least allow us other reasonable options to assume other kinds of risk that don't involve financial slavery to the company store. As it is there's no way to legally live in a house you own, or are trying to own, without dealing with an interest-sucking moneylender like HSBC. If we prick them they don't bleed, they sue.

Finally the poor old lady in the article is, like so many others in her situation, also at fault. Her testimony before congress included that statement that she didn't know her $700 a month payment could become $1100 a month with an Adjustable Rate Mortgage (ARM). Well, so I guess that just makes it OK to default then, doesn't it granny? You didn't know the loan was adjustable because you didn't read the fine print, or perhaps you didn't know that "adjustable" meant "able to be adjusted". Well shit, ma'am, we're real sorry about that. Let us just swallow up that nasty ol' default with our little ol' taxpayer funds and higher interest rates, you kind ol' ignorant leech. You can just pay us back in time-tested wisdom and the experience of age.

Of course, she's not entirely at fault for being forced to take out a friggin' loan with a friggin' mortgage company just to live in a house (although, you know, if her kids still loved her they might consider taking her in. Assuming she'd go, and isn't living with delusions of independence). I suppose she could have rented, but not all areas are rent-friendly. Maybe she lost some income and was forced to refinance a mortgage she's had for years. I don't know.

What I do know is that she's a typical example of an idiot consumer who essentially lets themselves get taken advantage of and then goes crying to congress because she was too old to be bothered with reading a dictionary. Perhaps her loan advisor lied to her. Well, that's grounds for criminal charges, to be sure, but I doubt there's an industry-wide problem of loan officers dealing with people too stupid to know what "adjustable" means.

More likely people take these mortgages knowing more or less what they're getting into, but feeling like they have no choice (about which they are at least partially correct) and hoping they'll never be called in on it. I understand that not everyone can afford a fixed loan. Of course they shouldn't have to -- fixed loans wouldn't cost so much if the interest regulations were changed. And so we come full circle.

So to recap: we have mortgage companies that rape the system by abusing loopholes and poorly-constructed laws in order to charge criminally high interest rates and live like kings in order to screw the rest of us. We have a government that allows those loopholes and bad laws to exist while forcing states to adopt wicked-huge beaurocracies in order to deal with them all, because the government is too busy worrying whether it's going to elect "Free Abortions" Giuliani or "No-Cost Abortions" Hillary to bother changing silly old laws. Finally, we have a consumer-base that leaves itself more or less purposely uneducated about the way things work in order to claim ignorance later, living according to the old Faustian maxim: when you deal with the devil, better to just close your eyes and turn the other way while you sign the paper you haven't read. Sure, it says he owns your soul, but don't worry, he won't call it in. He never does.

That's what everyone else says, anyway.