9 ms·

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the art

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used on targeted groups (I'm looking at the elderly, minorities and groups that are generally less financially sophisticated). Most people generally aren't in a position to "vote with their wallet". This is because most people are leveraged to their eyeballs with rents. This is a problem with Wall Street that trickles down, not a problem with the consumer that worked it's way up. > many consumers took on home loans they had no intention of ever making good on I disagree with this as well. People generally are not scam artist. On the contrary, most people like paying off their debts. Were people probably overly confident in their ability to repay, sure. Saying that people intended to default however, is not true. --- Wall Street (and it's derivatives... I'm looking at you, ad funded Silicon Valley) is full of fraud. The fraud stems from the fact that the only people who can realistically perform checks and balances on this group(s) are the groups themselves. You may be able to blame the consumer when they have full and clear knowledge of how the system works, but that's not the case. Wall Street is full of so many obscurities and 40k ft descriptions that the average consumer really has no chance. A good example of how the average person thinks financially... how many homeowners do you know that consider their home an "investment". Probably most, if not all.

fisherjeff 10y ago
> If they don't understand what they're selling (and I'm sure they don't) Moreover, why would they even want to understand? The loan disbursement will be going directly into to their pockets. The incentives are shockingly perverse all around.
curun1r 10y ago
> Saying that people intended to default however, is not true. I'm not sure if it's what roymurdock meant, but there's a nugget of truth to what he said. People did take on loans that they never planned to pay off personally. They saw the relentlessly upward trajectory of home prices and wanted to benefit. They took on loans with the intention of refinancing or selling the home a few years down the road. It wasn't an intention to defraud anyone, but it was definitely an attempt to get something for nothing. Just because they were trying to copy others who'd made large profits buying and then later selling their homes doesn't make it not greedy behavior.
- taeric 10y ago
  You can just as easily say that banks were giving out loans they expected to refinance in the coming years. That is, I find it misguided to fault people for defaulting on loan without faulting people for aggressively pushing people to refinance. The cost of the system failure is being pushed to the people with the least control over it. I'm not looking for punishment. But responsible stewardship of the system controls would be nice.
  - curun1r 10y ago
    > You can just as easily say that banks were giving out loans they expected to refinance in the coming years. Can't it be both? There's enough blame to go around. My only point was that the narrative of victimized homeowners preyed upon by evil lenders, put forth by a surprisingly large number of people, is misguided.
    - taeric 10y ago
      It can be both. However, the blast radius is different. For every lender that was irresponsible, you hit many lendees. For each lendee, you likely did not increase the number of lenders touched. That is, you fix one lender, and you likely fixed many more lendees.
- FireBeyond 10y ago
  Except that's not what he said (or perhaps he just said poorly). He didn't mention anything about "personally", he said "making good on". Someone flipping, re-financing or selling the home is inherently going to be making good on their mortgage. He is claiming there were swathes of people who had "no intention of making good" on mortgages.
roymurdock 10y ago
I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table. Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/community ties dissolving. Hell, I went to business school and read 10Ks for a living, and can still barely manage to figure out all the terms and conditions on my credit cards. I just want to point out that alternatives (usually uncomfortable, but often necessary) do exist to taking on opaque loans. How does someone get into a situation where they are "leveraged to their eyeballs with rents"? Sometimes it's purely out of necessity (need to be close to sick family, within commuting distance of work, keeping a rent controlled unit) but otherwise most people in the US generally have a choice of where to live and how much to pay in rent. I could live in the city and pay 1.5x what I'm paying now to live in the suburbs in an unorthodox situation, but I don't because then my rent would be >30% of my annual income. Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable? Also, if a homeowner considers their home an "investment" that means they should be willing to liquidate that investment at some point when it makes financial sense to do so. People get sentimentally attached to their homes, which is not true of most "good" (read: fungible/liquid) investments. We're definitely both against fraud, but unfortunately these government programs that make life better for some by subsidizing mortgages, home renovations, tuitions, etc. can and will always be gamed by unscrupulous individuals. Question is - is the payoff to society (higher homeownership, literacy, energy efficiency) worth it?
- intrasight 10y ago
  I think you've hit the nail on the head when it comes to houses - people form irrational sentimental attachments to their real estate.
  - Retric 10y ago
    It's not necessarily irrational to want to stay in the same home after 40 years. Money is only indirectly beneficial. If you enjoy where you live that can be worth quite a bit.
JumpCrisscross 10y ago
> If they don't understand what they're selling (and I'm sure they don't) If you're selling someone financing, it's your responsibility--more than the borrower's, in my opinion--to understand the product. Disturbingly, PACE financing appears to have been structured as a tax assessment instead of a loan. That means it sidesteps the "disclosures about the financing costs that traditional lenders must provide" borrowers [1]. [1] https://en.wikipedia.org/wiki/PACE_financing https://en.wikipedia.org/wiki/PACE_financing
TallGuyShort 10y ago
People need to stop signing forms they haven't actually read and understand. Make the person stand there while you read and think about it. It pisses them off like you wouldn't believe. If more people were doing that, they'd have to change and have simpler, more straightforward terms.
- rm_-rf_slash 10y ago
  Ever been to the ER and in a lot of pain? They will give you forms to sign and you will most likely sign every dotted line as soon as possible to get the pain to go away. Humans are not rational economic actors. Never have been. Never will be. This premise underlies the entire structure of consumerism. Watch "Century of the Self" if you don't believe me.
  - TallGuyShort 10y ago
    Yes my local hospital has been repeatedly getting an earful on this topic from me. We recently got calls from a debt collector over a bill that was never sent to our insurance, and I have no record of previous correspondence about it either. At the address provided by the collector as required by law, no one knew anything about the bill, because that department bills separately. They have no contact information for that department's billing. They also had no record of the doctor named in the bill. The only further evidence provided once lawyers got involved? My wife's signature on the very form you're referring to from when she was in labor, waiving all sorts of rights to dispute bills. I chewed them out for it when they made her sign it, too. That same provider had known she was pregnant almost the full term of the pregnancy and I had asked for all forms in advance. It's complete and utter bullshit.
NikolaNovak 10y ago
Can you elaborate on the homeowners considering their home an investment - and why they shouldn't? I've moved from Europe to Canada 20 years ago, and I'm still coming up against it all the time - I consider home/condo a utility, a bill paid for purpose; it can go up, but it can also go down. EVERYbody around me thinks I'm crazy and that houses are #1 best investment ever.
- Spellman 10y ago
  Because, at least in the US, except for the '08 crash housing has ALWAYS gone up. Historical Graph: http://www.calculatedriskblog.com/2017/01/corelogic-house-prices-up-71-year-over.html http://www.calculatedriskblog.com/2017/01/corelogic-house-pr... Now, it hasn't (and hadn't) gone up as quickly as the stock exchange, but it typically is a safe place to park your equity and let it grow. And especially during the height of the bubble and currently, it's growing in value rather quickly, so people (perhaps influenced by HGTV) started viewing it as not only a safe investment but one that, with a little DIY work, could be a rather fast growing investment! EDIT: added graph/article
  - nommm-nommm 10y ago
    Why Your House Is Not An “Investment”... a true investment requires more than the prospect of an increase in value. https://www.moneyunder30.com/why-your-house-is-not-an-investment https://www.moneyunder30.com/why-your-house-is-not-an-invest... * A house has a more important primary purpose * A house can’t be an investment if you never plan to sell it * Thinking of your house as an investment can lead to equity stripping * The carrying costs of a house are too high for it to be an investment * Your house won’t generate cash flow * Price appreciation is the magic ingredient, but it’s not guaranteed I'm not actually arguing against home ownership, I am a home owner myself. A primary home (for most people) should be thought of more as a commodity item.
    - thedufer 10y ago
      > A house has a more important primary purpose Aren't houses purchased for the intent of renting them out investments? This would argue that they are not. Seems to be proving too much. Despite the title, this section of the article is actually about how illiquid houses are. Which, again, proves too much - old bonds are also extremely illiquid, but no one says they aren't investments. > A house can’t be an investment if you never plan to sell it I buy plenty of VFINX that I don't intend to ever sell. I buy them for the dividends (incidentally, the same reason I would buy a house). > Thinking of your house as an investment can lead to equity stripping This says that thinking of your house as an investment leads to poor decisions, not that it is wrong. Sure, maybe it does, but that's a completely different argument. > The carrying costs of a house are too high for it to be an investment The carrying costs of a house are typically negative, unless you conveniently forget that a house covers a short position and is thus paying you back (in the form of covering your rent). Which the article does. > Your house won’t generate cash flow Again, it is covering a short position. It saves you from paying rent, which is mathematically identical to forcing you to continue paying rent but paying you the same amount. > Price appreciation is the magic ingredient, but it’s not guaranteed This is true of all investments.
MichaelBurge 10y ago
> A good example of how the average person thinks financially... how many homeowners do you know that consider their home an "investment". Probably most, if not all. Homeowners are often legally required to sign a document agreeing that their home is not an investment. It not being an investment is mostly the fault of your local government(and, I suppose, of the local homeowners themselves who don't make it an issue). If cities removed all the non-hazard-related zoning laws, property values would mostly be tied to the expected cap rate. And this would happen whether or not homeowners knew how to calculate a cap rate. And valuing something based on its profit potential seems close to the definition of an investment. OTOH, this reduces the ratio of property owners to renters, who are less likely to care about property rights(I wonder if this is one reason the cities skew left?). So your city might end up like California if you did that, and something even worse than zoning might come along. Historically, only property owners could vote, which is one way to solve that problem; it's possible the modern approach is to segment a certain percentage of the population into SFHs. You could check that hypothesis by seeing how SFH-owners skew politically(I haven't done this). I don't actually know anyone who owns an SFH, isn't an investor, and considers their SFH to be an investment. So I'm speculating on their motivations.

fisherjeff 10y ago

> If they don't understand what they're selling (and I'm sure they don't) Moreover, why would they even want to understand? The loan disbursement will be going directly into to their pockets. The incentives are shockingly perverse all around.

curun1r 10y ago

> Saying that people intended to default however, is not true. I'm not sure if it's what roymurdock meant, but there's a nugget of truth to what he said. People did take on loans that they never planned to pay off personally. They saw the relentlessly upward trajectory of home prices and wanted to benefit. They took on loans with the intention of refinancing or selling the home a few years down the road. It wasn't an intention to defraud anyone, but it was definitely an attempt to get something for nothing. Just because they were trying to copy others who'd made large profits buying and then later selling their homes doesn't make it not greedy behavior.

taeric 10y ago
You can just as easily say that banks were giving out loans they expected to refinance in the coming years. That is, I find it misguided to fault people for defaulting on loan without faulting people for aggressively pushing people to refinance. The cost of the system failure is being pushed to the people with the least control over it. I'm not looking for punishment. But responsible stewardship of the system controls would be nice.
- curun1r 10y ago
  > You can just as easily say that banks were giving out loans they expected to refinance in the coming years. Can't it be both? There's enough blame to go around. My only point was that the narrative of victimized homeowners preyed upon by evil lenders, put forth by a surprisingly large number of people, is misguided.
  - taeric 10y ago
    It can be both. However, the blast radius is different. For every lender that was irresponsible, you hit many lendees. For each lendee, you likely did not increase the number of lenders touched. That is, you fix one lender, and you likely fixed many more lendees.
FireBeyond 10y ago
Except that's not what he said (or perhaps he just said poorly). He didn't mention anything about "personally", he said "making good on". Someone flipping, re-financing or selling the home is inherently going to be making good on their mortgage. He is claiming there were swathes of people who had "no intention of making good" on mortgages.

roymurdock 10y ago

I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table. Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/community ties dissolving. Hell, I went to business school and read 10Ks for a living, and can still barely manage to figure out all the terms and conditions on my credit cards. I just want to point out that alternatives (usually uncomfortable, but often necessary) do exist to taking on opaque loans. How does someone get into a situation where they are "leveraged to their eyeballs with rents"? Sometimes it's purely out of necessity (need to be close to sick family, within commuting distance of work, keeping a rent controlled unit) but otherwise most people in the US generally have a choice of where to live and how much to pay in rent. I could live in the city and pay 1.5x what I'm paying now to live in the suburbs in an unorthodox situation, but I don't because then my rent would be >30% of my annual income. Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable? Also, if a homeowner considers their home an "investment" that means they should be willing to liquidate that investment at some point when it makes financial sense to do so. People get sentimentally attached to their homes, which is not true of most "good" (read: fungible/liquid) investments. We're definitely both against fraud, but unfortunately these government programs that make life better for some by subsidizing mortgages, home renovations, tuitions, etc. can and will always be gamed by unscrupulous individuals. Question is - is the payoff to society (higher homeownership, literacy, energy efficiency) worth it?

intrasight 10y ago
I think you've hit the nail on the head when it comes to houses - people form irrational sentimental attachments to their real estate.
- Retric 10y ago
  It's not necessarily irrational to want to stay in the same home after 40 years. Money is only indirectly beneficial. If you enjoy where you live that can be worth quite a bit.

JumpCrisscross 10y ago

> If they don't understand what they're selling (and I'm sure they don't) If you're selling someone financing, it's your responsibility--more than the borrower's, in my opinion--to understand the product. Disturbingly, PACE financing appears to have been structured as a tax assessment instead of a loan. That means it sidesteps the "disclosures about the financing costs that traditional lenders must provide" borrowers [1]. [1] https://en.wikipedia.org/wiki/PACE_financing https://en.wikipedia.org/wiki/PACE_financing

TallGuyShort 10y ago

People need to stop signing forms they haven't actually read and understand. Make the person stand there while you read and think about it. It pisses them off like you wouldn't believe. If more people were doing that, they'd have to change and have simpler, more straightforward terms.

rm_-rf_slash 10y ago
Ever been to the ER and in a lot of pain? They will give you forms to sign and you will most likely sign every dotted line as soon as possible to get the pain to go away. Humans are not rational economic actors. Never have been. Never will be. This premise underlies the entire structure of consumerism. Watch "Century of the Self" if you don't believe me.
- TallGuyShort 10y ago
  Yes my local hospital has been repeatedly getting an earful on this topic from me. We recently got calls from a debt collector over a bill that was never sent to our insurance, and I have no record of previous correspondence about it either. At the address provided by the collector as required by law, no one knew anything about the bill, because that department bills separately. They have no contact information for that department's billing. They also had no record of the doctor named in the bill. The only further evidence provided once lawyers got involved? My wife's signature on the very form you're referring to from when she was in labor, waiving all sorts of rights to dispute bills. I chewed them out for it when they made her sign it, too. That same provider had known she was pregnant almost the full term of the pregnancy and I had asked for all forms in advance. It's complete and utter bullshit.

NikolaNovak 10y ago

Can you elaborate on the homeowners considering their home an investment - and why they shouldn't? I've moved from Europe to Canada 20 years ago, and I'm still coming up against it all the time - I consider home/condo a utility, a bill paid for purpose; it can go up, but it can also go down. EVERYbody around me thinks I'm crazy and that houses are #1 best investment ever.

Spellman 10y ago
Because, at least in the US, except for the '08 crash housing has ALWAYS gone up. Historical Graph: http://www.calculatedriskblog.com/2017/01/corelogic-house-prices-up-71-year-over.html http://www.calculatedriskblog.com/2017/01/corelogic-house-pr... Now, it hasn't (and hadn't) gone up as quickly as the stock exchange, but it typically is a safe place to park your equity and let it grow. And especially during the height of the bubble and currently, it's growing in value rather quickly, so people (perhaps influenced by HGTV) started viewing it as not only a safe investment but one that, with a little DIY work, could be a rather fast growing investment! EDIT: added graph/article
- nommm-nommm 10y ago
  Why Your House Is Not An “Investment”... a true investment requires more than the prospect of an increase in value. https://www.moneyunder30.com/why-your-house-is-not-an-investment https://www.moneyunder30.com/why-your-house-is-not-an-invest... * A house has a more important primary purpose * A house can’t be an investment if you never plan to sell it * Thinking of your house as an investment can lead to equity stripping * The carrying costs of a house are too high for it to be an investment * Your house won’t generate cash flow * Price appreciation is the magic ingredient, but it’s not guaranteed I'm not actually arguing against home ownership, I am a home owner myself. A primary home (for most people) should be thought of more as a commodity item.
  - thedufer 10y ago
    > A house has a more important primary purpose Aren't houses purchased for the intent of renting them out investments? This would argue that they are not. Seems to be proving too much. Despite the title, this section of the article is actually about how illiquid houses are. Which, again, proves too much - old bonds are also extremely illiquid, but no one says they aren't investments. > A house can’t be an investment if you never plan to sell it I buy plenty of VFINX that I don't intend to ever sell. I buy them for the dividends (incidentally, the same reason I would buy a house). > Thinking of your house as an investment can lead to equity stripping This says that thinking of your house as an investment leads to poor decisions, not that it is wrong. Sure, maybe it does, but that's a completely different argument. > The carrying costs of a house are too high for it to be an investment The carrying costs of a house are typically negative, unless you conveniently forget that a house covers a short position and is thus paying you back (in the form of covering your rent). Which the article does. > Your house won’t generate cash flow Again, it is covering a short position. It saves you from paying rent, which is mathematically identical to forcing you to continue paying rent but paying you the same amount. > Price appreciation is the magic ingredient, but it’s not guaranteed This is true of all investments.

MichaelBurge 10y ago

> A good example of how the average person thinks financially... how many homeowners do you know that consider their home an "investment". Probably most, if not all. Homeowners are often legally required to sign a document agreeing that their home is not an investment. It not being an investment is mostly the fault of your local government(and, I suppose, of the local homeowners themselves who don't make it an issue). If cities removed all the non-hazard-related zoning laws, property values would mostly be tied to the expected cap rate. And this would happen whether or not homeowners knew how to calculate a cap rate. And valuing something based on its profit potential seems close to the definition of an investment. OTOH, this reduces the ratio of property owners to renters, who are less likely to care about property rights(I wonder if this is one reason the cities skew left?). So your city might end up like California if you did that, and something even worse than zoning might come along. Historically, only property owners could vote, which is one way to solve that problem; it's possible the modern approach is to segment a certain percentage of the population into SFHs. You could check that hypothesis by seeing how SFH-owners skew politically(I haven't done this). I don't actually know anyone who owns an SFH, isn't an investor, and considers their SFH to be an investment. So I'm speculating on their motivations.