Nanny Governments Vs. Stupid Personal Financial Decisions

The morons always lose.

Published on March 26, 2007 By greywar In Current Events

No one forces you to sign things unless they have a gun. You can however be forced by the sheer synergistic power of your own stupidity, laziness, and ignorance though. This is the case with many homebuyers and folks who take out debt consolidation mortgages.

CNN just did a fairly long piece on the folks who have signed up for loans that they haven't got a prayer of paying off ever. Of course CNN's AnchorDweeb fawned over the morons who stupidly signed a contract at signing that they knew had been changed! Of course it wasn't these tools fault... Nanny Government should have somehow stepped in and kept them from beggaring themselves at the altar of their own idiocy.

AnchorDweeb kept this up non-stop until the panel of commentators with her stepped in and roundly condemned the couple for doing something so patently retarded. Anchordweeb looked a bit stunned and hurt that they could possibly be holding people accountable for their own actions but caved to the pressure and reluctantly acquiesced that "Ok, maybe the people had some shame of the blame but shouldn't the Government do something?!?"

Here is the thing... the latest kerfuffle over "sub-prime" lending has confused many people. They way that home loans used to work was that the bank or mortgage company would issue a loan to people they considered to be good credit risks. This meant that they only gave loans to people they were fairly certain would actually be able to pay them back. The bank would then hold the loan and make their profit from the huge interest on a 30 year loan.

All this changed with the advent of real estate funds traded like stocks or bonds. The way this works is that a third party buys a bunch of mortgages from the original loan issuers. They then sell bonds to investors using the payments from the loans to pay the returns on the bonds. This was further refined by gathering these loans into groups by risk called tranches. The loans from high credit risk borrowers were grouped with other high-risk loans and the loans from rock-solid risks with other solid loans. Then an investor would buy a bond from one of the tranches receiving a much higher rate of return from buying a piece of a high-risk tranche (because this tranche was only paid off after the lower risk ones were paid off) while safer investors bought low return bonds from the safe tranches. Complicated I know but stay with me....

Since original lenders no longer held loans for the length of the mortgage they were far more motivated to give loans to people who were much higher credit risks than ever before. These high risk loans were easily sold to companies putting together bundles of loans for high-risk tranches. This is a pretty transparent vicious cycle.

Add to the tranche phenomenon the discovery that people aren't inclined to look at anything before signing it and you get specialty mortgages. These started simply as Adjustable Rate Mortgages or ARM's where the interest rate typically starts at an artificially low teaser rate for a year or two and then adjusts massively upwards based off the prime rate. ARM's are bad enough but they have nothing on "interest only" loans wherein you pay nothing but interest for the first 2/3 or so of the loan. This means that after 20 years of payments on a 30 loan you actually own nothing. Lenders love this type of loan a lot because they can allow lower interest rates since they still own the entire home for the next 20 years. Most borrowers will end up "selling" the home prior to that date which means they effectively rented the property from the mortgage holder but the mortgage holder wasn't responsible for anything as a landlord. Genius.

Tying up the stupidity hat-trick are loan consolidation mortgages. Companies will bend over backwards to convince dupes that rolling non-collateralized debt into a loan anchored by their homes is a good idea. I don't care how much credit card debt you have... no one will ever be able to repo your home or property because of it. Look it up. Home loans though are a different matter. Rolling debt that had no real hold over into a loan that can leave you homeless is a bad idea at any interest rate.

The real tragedy here is that none of these loans are ever "forced" on anyone. Each and everyone is brought into effect only when someone willingly signs a contract spelling it all out in black and white. Of course most people hate reading anything and simply sign whatever is put in front of them. it is only after they start having problems paying the bills for the loan they moronically signed for that they are gifted with bursts of energy. Then they have no problem speding 20 hours a weeks hawking their problem to sympathetic journalists and professional victimists who will sympathize with their "plight". all of this could have been averted by taking an hour or two to either read the mortgage contract yourself or spedning a few hundred dollars to have a lawyer read it for you. After all, what is a few hundred bucks when you are about to go into debt for hundreds of thousands?

Sign one of these and you have no one to blame but yourself. There are plenty of free resources out there that will explain home loans and amoritization schedules to you on the Web. Go use some.

P.S. Do yourself a favor and also do the free investing lessons over at Morningstar before you start day-trading. Or just be a retard and start losing money.

Comments (Page 1)

Texas Wahine

on Mar 26, 2007

I'm admitting up front that the first half of this was mostly over my head although I did *try* to comprehend it.

Anyways, I never sign anything without reading it. It pisses people off, too. "What? You don't trust me?" or "This is just a standard form. Sign it like everyone else does."

Fuck you. I'm reading it first to see if I want to sign it.

greywar

on Mar 26, 2007

I'm reading it first to see if I want to sign it.

Good for you. Many people don't realize that it is very difficult to write a contract that is illegal. Once you sign it, you are bound.

Dr Guy

on Mar 27, 2007

Not necessarily disagreeing with you, but the epople who do the interest only loans are counting on 2 things. One is that the prices are going to keep going up (some a little better than renting), and 2, they will be making more money in the future so can afford higher payments, so they can then roll it over into a conventional 80% loan. Both - as a RULE - are generally true. The sob stories are from where it is not true. And as indicated by recent trends, that non-true segment is about 15% of the Sub Prime market now.

Sean Conners aka SConn1

on Mar 27, 2007

No one forces you to sign things unless they have a gun.

wrong. mental manipulation can be every bit as powerful. i've been in sales fro a long time, and have seen people get ripped off who weren't dumb or lazy. desperate or greedy is more like it. and where i lack sympathy for the greedy who get stung by a better hustler, the desperate are another matter. of course, not everyone fits into this category, some people are just hustled by a hustler and are simply overmatched in the persuasive arts.

i have been in positions where i could have easily raked someone over the coals, and have them thank me for it, but i don't...and i like to think that has contributed to my successes. but that doesn't make me naive enough to think that i don't know that salespeople and "consultants" and the like can and do manipulate and effectively "force" people to do things everyday.

blaming the victim? guess all those women who were raped "wanted it" too...as did the kids. puhleassseee....

it may be good neoconservative spin to blame the victims there. but i just have way too much actual experience in this area to buy into the theory. salespeople (who aren't always recognized or presented as such, but really are) can have a great power over their clients and customers, and some don't always stay on the "good side of the force."

foreverserenity

on Mar 27, 2007

No one forces you to sign things unless they have a gun.wrong. mental manipulation can be every bit as powerful. i've been in sales fro a long time, and have seen people get ripped off who weren't dumb or lazy. desperate or greedy is more like it. and where i lack sympathy for the greedy who get stung by a better hustler, the desperate are another matter. of course, not everyone fits into this category, some people are just hustled by a hustler and are simply overmatched in the persuasive arts.

I totally agree with you on this Sean!

Some people are stupid enough not to read before they sign, and not to get a lawyer's advice if they don't understand, or even someone else who has been there done that who knows better, in not taking any of these steps, yes, they are dumb not to do that! Plus, it's beyond me how people can go willingly and sign for mortgages they know they cannot afford! Duuuhhhh!

However, there are those people in the industry who are there to make a quick buck, they will pressure these types of people and they do their jobs very well. That much we all know is true! And don't forget the ones who love to scam the banks and other lenders by pulling fast ones with bogus documents so that a person buying a house can look good on papter! The stories I've heard are unbeliveable! This is why they should all be held accountable!

greywar

on Mar 27, 2007

S.C. and Forever -

I understand your points but being pressured does not equal being forced. Even people under mental pressusre still have the responsibility for their own decisions.

You certainly wouldn't accept that someone who commits a murder because of a high-pressure sales pitch is not liable for their actions the same as if they were forced to kill or be killed at the point of a gun?

Simply being weak minded doesn't excuse a person from their responsibility.

foreverserenity

on Mar 27, 2007

I understand your points but being pressured does not equal being forced. Even people under mental pressusre still have the responsibility for their own decisions.

I understand your saying this too. Use for example this case I was discussing yesterday, in brief, my friend/co-worker told me that she's trying to convince her cousin not to fall for this mortgage company's tactics who were pressuring them into putting down a deposit on a house because if they don't do it they'll never never have that opportunity again or some such glib! Even though the person knows better, they are so frantic because it's a house they like, and they have the money now and all sorts of stuff. They had to do it tonight and tomorrow will be too late! Yes, they do have responsibilities for themselves, but the added pressure makes them not think too clearly!

Dr Guy

on Mar 27, 2007

being pressured does not equal being forced. Even people under mental pressusre still have the responsibility for their own decisions.

Amen! How many of us have had high pressure Insurance and Car Salesmen?

greywar

on Mar 27, 2007

How many of us have had high pressure Insurance and Car Salesmen?

Most sales industries use high pressure tactics because they tend to work. Salespeople don't care if you default on a loan because they already made their commission. It ends up being a bad business practice in the long run but many business owners get blinded by the short term gains.

Yes, they do have responsibilities for themselves, but the added pressure makes them not think too clearly!

Agreed, but this doesn't mean that the rest of society has to step in and pass laws to shepherd them from their own stupidity. Their lack of focus shouldn't cost me a dime.

SanChonino

on Mar 27, 2007

I understand your points but being pressured does not equal being forced. Even people under mental pressusre still have the responsibility for their own decisions.

The problem with this logic is that, you can also make the case that having a gun placed to your head doesn't force you to do anything either. You can choose not to sign and have your brains blown out - it's still YOUR decision, you're forced to do nothing.

greywar

on Mar 27, 2007

You can choose not to sign and have your brains blown out - it's still YOUR decision, you're forced to do nothing.

Gee, generally most folks can see the difference between the threat of deadly force and a high-pressure sales pitch. Of course some people seem to have problems making the distinction. Perhaps we need legislation to control them?

Of course the choice is still there and there are absoultely moral judgements made on those situations as well. Generally we regard people who allow themselves to be shot over shooting someone else as being selfless. The problem with your argument is that you are drawing the conclusion that holding a gun to someone's head and subjectign them to a high pressure pitch are morally equivalent when they most assuredly are not.

SanChonino

on Mar 27, 2007

most folks can see the difference between the threat of deadly force and a high-pressure sales pitch.

I see what you're saying, but I still think you're putting too much pressure on the consumer. That's like saying it's okay to sell lead-based paint, because "people are still free to buy it". It's still a deadly product, and must needs be regulated.

Just a thought.

SanChonino

on Mar 27, 2007

And the magic double-post creature rears its ugly head . . .

greywar

on Mar 27, 2007

It's still a deadly product, and must needs be regulated.

And so mortgages are deadly products? Keep in mind that there is already a boatload of anti-usury legislation on the books limiting the maximum rates that lenders can charge and so on... These folks are simply signing into loans that are beyond their means to pay.

Sean Conners aka SConn1

on Mar 27, 2007

remember, this isn't called "really aggressive lending" , it's "predatory lending" which implies a predator. and predators use deception and lie to achieve their means. what i'm talking about goes well beyond the "hard sell." someone can hard sell and be still be honest. predatory salespeople lie and deceive their customers and clients.

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