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.