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 3)

Sean Conners aka SConn1

on Mar 28, 2007

yeah, whatever guy,,,stop contradicting yourself. you specifically claimed that these tactics weren't illegal in reply #25 et al.

greywar specifically said that if someone signs something, it doesn't matter, they have to pay.

you 2 assume that what these lenders are doing might be aggressive, but aren't illegal. and perhaps in some cases, that is correct. perhaps in the case on CNN, that was so. I am saying that the assumption that unless a gun was literally held to their head, then nothing illegal was done, is simply wrong and naive.

just one more note from my years in sales and sales management...the people who came off and made it clear that "they knew what were doing" were often the ones that were the easiest to read, break down and close. as i said before, i didn't ever operate like some i saw who did use predatory tactics on customers, but i've witnessed supposedly "educated customers" get slammed "in the box" (the slang for the room a closing of a sale takes place). there is an old sales joke, that someone often parrots after such a closing...they will page a janitor or maintinence person who is responsible for cleaning up and ask them to "clean up the blood" in the office, or place where the customer was hustled. do ya think that terminology means they were really straightforward and honest with the customer?

Dr Guy

on Mar 28, 2007

yeah, whatever guy,,,stop contradicting yourself. you specifically claimed that these tactics weren't illegal in reply #25 et al.

No, I said that the ones that were not illegal were not illegal. Some predatory practices (as you call them - it is the elephant after all) are illegal. Those we already have laws against or they would not be illegal. Some are not (which are which, I did not and will not say as I am not fully conversant with the law). If you want to call all predatory practices illegal - then define them as such so we can debate and discuss the issue. If you want to label all practices you do not like as predatory - whether legal or illegal - you can do so (I assumed this since instead of saying illegal - you used another perjorative term). But do not fault me because I am not a mind reader and you did not clarify what you were talking about.

Sean Conners aka SConn1

on Mar 28, 2007

If you want to label all practices you do not like as predatory - whether legal or illegal - you can do so (I assumed this since instead of saying illegal - you used another perjorative term). But do not fault me because I am not a mind reader and you did not clarify what you were talking about.

the only point i am making is that illegal practices do happen more often than most would like to believe. brushing them all off as "stupid, lazy people" and gettin all holier than thou and suggesting that none of it is worth looking into is the wrong position in my view. guess we don't need any more lawyers, judges, or courts, cause greywar has it all figured out and can tell us all exactly how to act, think and live. puhllleaaasseee...you are just blindly defending your right wing crony and in this case, you are both wrong in my opinion.

Dr Guy

on Mar 28, 2007

Actually, I dont see anyone anywhere here defending or excusing illegal practices. The point was not to make the illegal illegal (that is just stupid), it is to ensure we do not make the legal illegal due to stupid decisions on the part of the buyer.

Sean Conners aka SConn1

on Mar 28, 2007

it is to ensure we do not make the legal illegal due to stupid decisions on the part of the buyer.

and i obviously disagree with greywar on assuming that the people handling all the sub prime lending are acting legally and it's just those "lazy, stupid people's fault."

Dr Guy

on Mar 28, 2007

and i obviously disagree with greywar on assuming that the people handling all the sub prime lending are acting legally and it's just those "lazy, stupid people's fault."

Again, I dont think Greywar was talking illegal practices, just the legal ones. If there was any current (note the tense) illegality, then the buyer has a recourse, and this is not about them.

foreverserenity

on Mar 28, 2007

BULLSHIT. If you are too dumb to read the fine print on a credit card, should we have hearings to absolve you of your personal responsibility? Should my overeagarness to actually own a overpriced car remove the responsibility that I have to actually make the payments? When I applied for a car loan, they wanted to give me $60,000....?!?! I know darn well that I can't afford that payment, EVEN if the bank is willing to loan it to me. The amount that I can afford is MY responsibility. It doesn't matter what shady scheme they put forth, I should choose to THINK. IF someone can't think....then see greywar's latest article.

Well, the writing is on the wall as they say LH, there are people out there who ARE too stupid to do the right thing and read the fine print and do the other stuff that they're supposed to do to cover there asses! That's the point! They do this and that's the risk they take and live to regret it. For every sensible people out there who have their shit togehter and can have the world at thier feet because they are SMART enough to do the right things, there are at least two people who dont' know because they're too green to know the difference! Should it be your problem no, should it be mine, no! But there are people out there who prey on these two people!

Sean Conners aka SConn1

on Mar 28, 2007

Again, I dont think Greywar was talking illegal practices, just the legal ones

no, he claims that all these ARM's and interest only loans and refi's, etc, etc...are all legal and it's all the buyer's fault. he does not even account for a manipulative salesperson or practice. it's all about what's in the contract and once it's signed, no recourse, unless it was an "illegal loan" (which is absurd) can be had according to him.

it sure is easy to wash your hands of all of it when all ya do is look at the contract and "forget" to factor in any other element in judging the legality of something here. but where it may be easy, it is simply wrong.

pseudosoldier

on Mar 28, 2007

there who ARE too stupid to do the right thing and read the fine print and do the other stuff that they're supposed to do to cover there asses! That's the point! Should it be your problem no, should it be mine, no! But there are people out there who prey on these two people!

Actually, the point of the article was that if someone is stupid enough to sign a contract that royally screws them financially, it shouldn't be our problem. Some people are arguing that it should be our problem, and we should legislate against it.

There are laws that protect against usury. Legislators have even tightened these up to protect the public against more; the "payday loan" places targeting military members is one such adjustment of these laws. But there should be point where we draw the line of how much protection is afforded the common citizenry. They should be smart enough to realize what they are getting in to, or at least smart enough to realize that they aren't smart enough, and then they should go find someone smarter (grey's suggestion of a lawyer is a fine one).

Sean Conners aka SConn1

on Mar 28, 2007

you ignore and diminish how much a salesperson can manipulate them. it's not all about the contract and ignoring the rest of course will bring you to that conclusion, but unfortunately, there's more to it.

foreverserenity

on Mar 28, 2007

Actually, the point of the article was that if someone is stupid enough to sign a contract that royally screws them financially, it shouldn't be our problem. Some people are arguing that it should be our problem, and we should legislate against it.

I should have said, that was the point I was trying to make! Fingers did the typo-ing!

! [not wrong spelling-wrong message from the brain]

Well, the writing is on the wall as they say LH, there are people out there who ARE too stupid to do the right thing and read the fine print and do the other stuff that they're supposed to do to cover there asses! That's the point! you ignore and diminish how much a salesperson can manipulate them. it's not all about the contract and ignoring the rest of course will bring you to that conclusion, but unfortunately, there's more to it.

Not at all Sean, I do see the point you're making and agree with the fact that there are preditory lenders around. But you have to admit there are people who don't always read the fine print. And the point I was making was that sometimes people do get overly excited at being able to do something, live or dream or whatever, as in buying a house, etc., and they think they can do it and they don't (or can't) because they didn't plan properly. Although this is their fault, there is the real estate person out there who will prey on people like this.

pseudosoldier

on Mar 28, 2007

I should have said, that was the point I was trying to make! Fingers did the typo-ing!! [not wrong spelling-wrong message from the brain]

So... are you saying that you agree with the original article? That there are people who are stupid/foolish enough to sign these bad contracts without reading them, and that they should be responsible for their actions and not the rest of us?

lifehappens

on Mar 29, 2007

repeated false and misleading advertising; failure to return deposits; failure to return a customer's own vehicle; misrepresentations of a consumer's right not to go forward with a purchase; increasing the price of a vehicle or the finance rate without advising the consumer; adding unwanted options, such as rustproofing and extended service contracts; failing to include the odometer reading on documents and misrepresenting odometer readings on other vehicles; removing federally-required manufacturer's suggested retail price labels and charging more than such stated price; and failure to honor repair claims and warranties.

Hmmmm, none of these predatory tactics will stop me from NOT SIGNING THE CONTRACT. I have a recourse, legal action against anything this blatant or I can just walk out the door. I KNOW how much I can spend...if rustproofing ups the cost too much....then I can't buy it.

amen.

We DO need lawyers...to read the contracts before we sign them. We do need lawyers, judges and courts to prosecute those who are committing crimes. It sounds like you think we need to expand the welfare program to include a hand holding departments and a "it was a mistake and not my fault and take all responsibility away from me" department.

So what do you think about the stupid and predetory lenders? Should we give people a 'get out of jail free' card to use when they are too stupid to figure out how to spend there money? Is it our responsibility (or the Government's) to babysit and pass more laws and more buerocratic red tape to protect the dumbest citizens? Why SHOULD the government DO anything? What exactly to you think should be done?

Personal responsibility will not protect you against getting locked into a bad loan. I fell for a trap when I bought a second house as a duplex. I could afford the monthly payments, tax, insurance etc. It was a reasonable price and was low enough that I could keep the rent low. A year later when the rest of the properties were built up, my taxes tripled. Suddenly, I couldn't afford to cover lost rent and repairs. I ended up struggling for another year before selling the house. I thought I had anticipated every potential situation and prepared myself accurately. When I realized my problem, I didn't go whining to someone else to bail me out. I TOOK PERSONAL RESPONSIBILITY. When we sold the house we were in dire financial straits, the agent knew we had to close on the 31st because we didn't have enough money to cover the mortgage for another month. He royallly screwed us over by bringing different documents to the closing table. We lost out on $1500, but due to the situation, we couldn't wait any longer. We had no options other than filing deceptive buisness practices with the real estate board and the BBB. Did I run to the news to save me? no. So yeah, smart people who study the situation and do the best they can might still get screwed, but they learn and move on.

lifehappens

on Mar 29, 2007

double post....sorry it was so long....

foreverserenity

on Mar 29, 2007

I'm saying that I agree that people do sign documents without reading them, or they do it with a vague knowlege of what is required of them because they think they can handle the responsibility but can't if any emergency arises. I'm saying that there are people who will sign documents without reading because they can't believe that they are about to 'live the American dream'. I'm saying that there are predatory lenders out there who DO prey on these types of people and are glad that they are out there because without them, they won't meet their quota. And I also say that something needs to be done about lenders like those who do prey on people knowingly. I agree that everyone else should not be held accountable for the mis-guided actions of the borrowers, however there seems to be a denial that these predators are out there.

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