There have been a growing number of stories in the news about homeowners suing their former mortgage brokers over the loan they received. Lawyers, as usual, are looking for victims to drag more people into the court system and try to extract money from them, instead of providing a useful service to society. Many of these lawyers will be able to extract some form of judgment payments from the mortgage brokers, of course, but it is doubtful how much real responsibility mortgage brokers have in the current foreclosure crisis. In fact, lawyers as a profession may have more to do with all of this.
The average broker can be just as much a victim as homeowners, and many more former brokers and loan originators are feeling the pain of tighter credit and declining property values. Your potential customer base is shrinking fast. The easy business is gone, and banks aren’t approving loans without better credit and real down payments. For brokers who specialized or earned a significant amount of income from lending to bad credit borrowers, they may not be able to stay in business at all.
This easy credit environment and flexible lending policies was created by the government, the official home of lawyers. The Federal Reserve slashed interest rates to stimulate the economy, but it only succeeded in creating a huge financial bubble in the housing market. Local governments and big banks turned a blind eye to the fact that many home values were being inflated beyond any assumption of reality. Property taxes increased, and lenders were able to make huge loans on properties worth far less than stated, package them in incomprehensible financial products, and sell them to uncaring hedge funds.
Mortgage brokers played the most direct role with homeowners, but they only offered the mortgage companies’ products to a market of homeowners and buyers who wanted them. If adjustable rate or single interest mortgages weren’t useful or desirable, then they wouldn’t have been as popular. Brokers would have had to offer more reasonable and less flashy products to their customers, such as affordable home loans or higher fixed-rate mortgages. But many homeowners didn’t want this type of loan or didn’t qualify for a more standard mortgage but wanted to buy a home anyway.
In all cases, aside from fraud by the broker, mortgage lender, or service company, the responsibility lies more with homeowners than anywhere else. It’s up to mortgage consumers to understand how their loans will work, not just now but years from now, and to be able to weigh at least the biggest risks, such as declining property values and rising interest rates. Few people buy cars without researching their options and evaluating the features of their potential options, such as cost, safety, mileage per gallon, etc. And cars have much more technical and moving parts, and are less expensive and shorter commitments than buying a house with a mortgage.
While greedy mortgage brokers may become the scapegoat of the foreclosure crisis, they weren’t the only ones to fall into the era of easy credit. Banks and hedge funds encouraged the use of these lending products in all cases, and the government created a big bubble instead of acknowledging that bubble economies don’t fix previous bubble economies. Lawyers, if they really wanted to hold the right party accountable for the foreclosure mess, would go after the government’s bad monetary policies. But that would be like expecting a dog to bite the hand that he feeds it. Lawyers in government create the laws and policies that allow financial bubbles to occur, and then use other laws to divert responsibility from themselves, encouraging lawyers outside of government to do whatever they can to steal money from the productive of society and drag them down. in front of another government lawyer who wore a black robe.