Reporting live from ground zero of the housing crisis, The Miami Herald is running a multi-part series titled Borrowers Betrayed, which tells the story of flim-flammy mortgage brokers and their wake of devastation. Even people who know about loose lending standards might be surprised by some of the details. The latest instalment Exec had mortgage racket down to an art tells a tale of massive fraud helped by the falsification of every single detail on loan docs. The exec behind the mortgage ring is now in jail, and there neighborhoods where his clients moved into homes are blighted by abandonment.
Depressing story, yes, but we have to point out something obvious: It’s not “Borrowers Betrayed”, it’s “Lenders Betrayed.” When a mortgage broker knowingly puts false information on a form, the intent of that is to deceive the ultimate lender.
The problem is that the media and politicians aren’t allowed to show any sympathy for bankers and money lenders — which have historically been despised professions. So even a story about a predator exploiting a lender must conclude that the borrower was the ultimate victim. You’ll never see a series called “Fannie, Freddy… BETRAYED!” or “MBS buyers… BETRAYED!”
None of this excuses the banks. Their whole business was to manage risk and judge creditworthiness and they chose to outsource that job to the shadiest of players. That turned out to be a disaster. But as long as we think borrowers were the only victims, you can be sure that any regulation we come up with will get it exactly backward.
As an aside, if you read through the reports and watch the videos, you get a sense that one of the worst legacies will be neighborhoods where half the houses are dilapidated and overrun by weeds (much like the picture we use above). This is a disaster for the people in good standing who live on those streets. Perhaps an effective use of Obama’s infrastructure money would be spending to clean up those houses, so that at least our housing stock — which will be needed eventually as population grows and the economy improves — doesn’t deteriorate too badly, forcing us to rebuild the wheel, so to speak.
(HT: Barry Ritholtz)