The house next door sold recently and I met the new neighbor yesterday evening. Our discussions lead to where we work (at my day job). He is a comercial lending officer for a bank that I see mentioned frequently on BP for their skewed policies. When I told him I was an investor that focuses on rehabs and resales, he said,
"we used to make those kind of loans. We stopped because we found that flippers were taking advantage of people that didn't really qualify for loans."
I asked him to explain that to me. He said these flippers were actually going into parts of town and rehabbing houses that were no more than rental houses and selling them to people that wouldn't otherwise qualify for a loan. Of course I asked him "then how did these people get the loans." The best I could understand from him is if they put a contract on these rental homes then they qualified and they are taken advantage of because they eventually go into forclosure.
So, I asked him if it would be better if the banks and mortgage companies didn't have all of these aggressive programs backed by the government for these poor soles. His veiw point remains that it is the investors fault for selling these homes to people that really don't qualify.
I left before it got heated and with a little better idea of how some people think. I am pretty sure I know whose sign will be in his yard come election time.
Of course it's not the banks' fault!
It's always irresponsible borrowing. Never irresponsible lending.
Too bad capitalism still tries to operate in the face of government regulation.
I fully believe that the blame falls on the shoulders of multiple groups of people, it truly was a perfect storm. However, I place the largest portion of blame on the banks, as they are ultimately responsible for choosing who they lend to. The banks got greedy and were lending to anyone, and I mean anyone! In fairness though, I will admit I have seen some shady investors in my short time in this business, and these few people hurt the reputation of investors everywhere.
The good news is you and your neighbor will probably have time to discuss this more thoroughly.
I agree with James - everyone can share a little blame, but the banks should ultimately know not to lend to someone who they do not think will be able to pay it back!
It's an interesting conversation, but not surprising in the least. Back when I was working on the fraud aspects of flipping and sitting on the boards and conferences and task forces, it was amazing how many officials both elected and corporate had no idea that flipping property was not illegal. I spent a lot of time trying to explain to some otherwise bright people that making money on a transaction wasn't illegal, improper, or wrong. There were even some of these financial institutions in attendance.
This was back in the height of the pre-meltdown stages when everyone was trying hard to blame the investors, the markets, or sometimes even the lenders. I never attended a conference where someone put forth the notion that borrowers accurately assess their ability to pay for their loans based on real income or means. Everyone is to blame except the poor downtrodden person signing their name on the line to be responsible to pay back all that money they borrow.
It'll be interesting to hear how further discussions with your new neighbor play out.
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