There have been a growing number of stories in the news about homeowners suing their former mortgage brokers over the loan that they were given. Lawyers, as usual, are seeking out victims in order to drag more people into the court system and attempt to wring money out of them, rather than actually providing any useful service to society. Many of these attorneys will be able to extract some sort of legal judgment payments out of the mortgage brokers, of course, but it is doubtful how much actual responsibility mortgage brokers have in the current foreclosure crisis. In fact, the lawyers as a profession may have more to do with it all.
The average broker may be just as victimized as the homeowners, and many more former brokers and loan originators are feeling the pain of tighter credit and declining property values. Their potential customer base is quickly shrinking. The easy business is just not there any longer, and banks are not approving loans without better credit and actual down payments. For brokers who specialized in or got a significant amount of the income from providing loans to borrowers with poor credit, they may not be able to stay in the business at all.
This environment of easy credit and loose lending policies was created by the government, the official home of the lawyers. The Federal Reserve lowered interest rates drastically in order to stimulate the economy, but only managed to create a huge financial bubble in the housing market. Local governments and large banks turned a blind eye to the fact that many of the home values were being inflated beyond any assumption of reality. Property taxes rose and lenders were able to provide huge loans on properties worth far less than stated, package them into incomprehensible financial products, and sell them to uncaring hedge funds.
The mortgage brokers played the most direct role with the homeowners, but they were only offering the mortgage companies’ products to a market of homeowners and buyers who wanted them. If the adjustable rate or interest-only mortgages were not useful or desirable, then they would not have been so popular. Brokers would have had to offer more reasonable, less flashy products to their customers, like loans on affordable homes or higher, fixed rate mortgages. But many homeowners either did not want this type of loan, or they did not qualify for a more standard mortgage but wanted to buy a house anyway.
In all cases, besides that of fraud on the part of the broker, mortgage lender, or servicing company, the responsibility lies more with homeowners than any other party. It is up to the consumers of mortgages to understand how their loans will work, not just now but years down the road, and be able to analyze at least the largest risks, such as declining property values and rising interest rates. Few people buy cars without researching their options and evaluating the features of their prospective choices, such as cost, security, mileage-per-gallon, and so on. And cars have far more technical, moving pieces, and are less expensive, and are shorter commitments than buying a house with a mortgage.
Although greedy mortgage brokers may become the scapegoat of the foreclosure crisis, they were not the only ones taken in by the era of easy credit. The banks and hedge funds encouraged the use of these loan products in every case, and the government created a huge bubble instead of recognizing that economic bubbles do not solve previous economic bubbles. The lawyers, if they really wanted to hold the right party accountable for the foreclosure mess, would go after the government’s poor monetary policies. But that would be like expecting a dog to bite the hand that feeds it. Lawyers in government create the laws and policies that allow the financial bubbles to occur, and then use other laws to deflect accountability away from themselves, encouraging the lawyers out of government to do their best to steal money from the productive of society and drag them in front of another lawyer in government wearing a black robe.