In a previous post I had mentioned I belonged to USAA. For anyone who doesn’t know, USAA is an insurance company founded by Air Force personnel back in the days when military members found it almost impossible to get insurance.
As it turns out, I had saved an article from their USAA MAGAZINE, Spring 2007, issue. It was about mortgages. Keep in mind the date of this particular issue.
By the way, USAA has a reputation of being one of the best carriers in the country with a very stable business model. The advice in their magazine usually follows suit.
Here is one sentence from that article that stands out like a sore thumb:
“Many borrowers may not fully understand the changing payment schedules, especially the sharp monthly payment increases common in these mortgages,” says Allen Fishbein of the Consumer Federation of America.
What followed that quote are these words:
And if you put very little down and real estate prices decline, you could face a loan balance that exceeds the present value of your home. That’s downright scary.
You don’t have to be a rocket physicist to know the mortgage type being referenced. And, you don’t even have to be a nuclear pharmacist to see this bit of advice was too late.
I want to believe they just missed the ball by publishing this article when they did. Maybe they didn’t want to believe the problem would grow to the magnitude it has grown. Maybe their mortgage lending division was making very few ARM loans. After all, they are a conservative bunch down there in San Antonio.
I wonder how many other supposedly conservative lenders were of this mindset during the Spring of 2007. It is hard to believe many existed as the problem certainly had its ugly head above water level.
I am not singling out USAA for criticism or accusing them of aggravating the problem. I am merely using their published words as a highlight as to the possible thinking that may have existed that late into the burgeoning crisis.
Wouldn’t it be a kick in the pants if some of that thinking is having a residual effect? It would go something like this, “As long as we warn the consumer about the possible dangers, it is OK to keep making loans they can neither qualify for nor afford.”
After all, there is a school of thought that says you can borrow your way to riches and it is being promoted even in today’s world. I guess pay back never visits some people’s door step.
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Tom KoziolTom has written 72 articles for us.
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{ 12 comments… read them below or add one }
Loan business is just like drugs business. Getting money by giving peoples fake pleasure which in turn bring them to big problems.
It is hard to believe many existed as the problem certainly had its ugly head above water level. But it has a concerned value.
That is why some countries have made laws about recless lending. As an example in South Africa since the 1 of July 2007 all financial institutions are obligated to follow some process and they are not allowed to lend carelessly. Irrespective if this is to home loans, car loans or credit cards.
The second that the law came out, which is called the NCA (National Credit Act) everyone was crying.
Karen,
Believe it or not, the U.S. has the strictest lending laws known to mankind. The problem isn’t the laws, it is the guvmint overseers. They are all political animals and as their boss goes, so go they if you know what I mean.
All of the laws in the world are worthless without proper enforcement. At least I think so.
Very very true
Good article. The problem is two-fold. First is the fact that MBA schools spend all their time teaching busness leaders how to make money instead of how to be honest and make the world a better place.
The second problem is that the borrowers don’t take the time read what they sign. They are too trusting and do bear at least as much responsibiltiy as those who foisted the loans upon them.
Yes, the borrowers should take the time to read what they are signing and ask questions about what they don’t understand. Unfortunately, they are too pre-occupied with obtaining the property to learn exactly what that property will actually cost them.
Scary, but I definitely can related to this situation. This might be the case with the decrease of urban property value and increase of inflation rate.
There is plenty of blame to go around.
Investors know that there were as many “predatory” borrowers as there were lenders.
This is not a new thing. I am realestate broker in my late 30’s and i can remember vividly my father talking about people with “upside down” mortgages in the early 80’s. I also remember how hard my first loan was to get in the early 90’s compared to being able to walk in and get almost any number last year.
I deffinately could have borrowed more than I could pay back.
Cheer’s
If the sky is falling, then we will be more concerned about what to eat than anything else. Real estate will be a good investment if the sky is really falling. Plus..think of all the great opportunities out there.
“Real estate will be a good investment if the sky is really falling.”
yeah, so the sky wont fall on ur head…lol