Ever see those Three Card Monte schemes? Guy shifts around three cards, all you have to do is follow one. You point to it, you double your money.
That's a con. So is in many ways the subprime mortgage world. Get a loan. Pay below-market rates. Don't worry. By the time the rates go up, you'll find new money somewhere else. But in the mortgage game, as in the three-card shuffle, there is one basic truth:
Nothing forces you to participate.
Except maybe greed.
This is hard to hear, in a world where homes are being lost and lives are being ruined and it does not apply to people losing houses because of job layoffs but let's be real: Not all the fingers in the housing market crisis can be pointed at mortgage brokers, lenders, builders or credit rating agencies.
Oh, they were greedy, for sure. They were rabidly hungry for more money, new money, and because there wasn't enough in safe, qualified home buyers, they went after the pockets of the poorer and riskier.
But they didn't reach inside those pockets. Instead, they lured people to reach inside themselves. And while some of those people were desperate, in need of a home, and should never have been taken advantage of, many others got stung by a seductive American philosophy:
If you want it and you can't afford it, don't let that stop you.
IF YOU CAN'T AFFORD IT …
Recently, at a Federal Reserve symposium as foreclosures were reaching an all-time high top economists suggested that the housing boom we saw from 2000-06 was caused less by marketplace rules than by "speculative thinking" and "boom psychology," code words for "I'm gonna get rich."
Too many people bought too many homes they couldn't afford, figuring, in a weird way, that by buying them they could one day afford them. Others bought houses, saw them rise in value, then snatched the new equity out of them and borrowed more. Others bought, sold and bought bigger.
And, yes, many bought because they didn't want to accept the truth: You can't afford it. They took no-money down loans. They lied on their documents claiming assets they didn't have. They took loans that started low but would quickly adjust high.
These facts were in the paperwork. But many ignored the small print, the way you ignore the weather report when the sun is out.
Who's at fault then, the folks who ignore warnings or the merchants who know they will? Who's at fault, the liar, or the firm that doesn't check?
Or maybe the better question is not who's at fault, but what?
FINALLY PAYING THE PRICE …
There was an ad campaign once for L'Oreal that went "Because you're worth it." That's a catchy sentence. But it's not a philosophy of life.
Sadly, it has become one in America. Saving for the future is out. Spending for the present is in. Dying and sticking it to creditors is an endgame.
You need go only to certain pockets of this country Southern California comes to mind to see how "beyond your means" is a way of life. Expensive cars are leased, not owned. Plastic surgery is bought on credit. Credit cards are maxed. And houses are not an investment, but a bank account to be drawn from.
For people who live this way and got tagged in the subprime mess, it is hard to work up much sympathy. Whatever happened to working, saving and THEN buying? Too many folks thought identifying a rising house was work, a skill for which they should be paid.
If so, then you have to pay when it goes backward. This is not to be unkind or insensitive. But as we now watch borrowers suing banks and banks suing lenders, it is worth remembering the Three Card Monte rule.
It takes two to play the game.