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When the Teacher is First and Foremost a Salesman, What Difference Does the Text Make?

What is the role of housing education and counseling in the future housing economy and finance system?

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If the subprime fiasco taught us nothing else, it showed that all the armature of mandatory disclosure is no protection for anxious people grabbing at what they believe is their only chance at least the lowest rung of the homeownership ladder. Nor are consumers and the economy well served by our current system of ex post facto tort floggings, where financial institutions are punished for being unwitting bulk receivers of fraudulently originated loans.

Was the problem in fact one of consumer education, or of excessive risk assumption by consumers? In the main, people are in foreclosure now because they took on loans whose payments they could make only because they were artificially low (teaser rates, negative amortization), or because they lied about their income (or were induced to lie by unscrupulous mortgage originators who planned to sell the loans and skedaddle).

In other words, people didn’t get in trouble because they were under-informed. They got in trouble because they were over levered to begin with, and they wanted to be over levered because they thought it was the only way in to the moneymaking game.

You can’t tell people what to want; they will resent your condescension and reject your advice. You can tell them the financial or economic implications of the choices available to them. Maybe we should add a second opinion during a brief cooling-off period, where for any loan product of particular enumerated types, consumers are obligated, no sooner than (say) forty-eight hours after signing the papers, to meet with a public advocate (paid for by the state, not the borrower or lender) who cannot be in the mortgage business; if not, the loan is unenforceable.

The fault, dear readers, is not in our disclosure but in our loans, that we are underlings.

David A. Smith is the founder and chairman of Recap Real Estate Advisors.

Welcome to the BPC Housing Commission expert forum! This forum is intended to foster interactive and substantive discussion about pressing housing issues. Each month contributors from different parts of the housing sector will be invited to respond to a discussion topic. Guest posts will feature prominently on BPC’s website, as well as be shared regularly with Housing Commissioners to help inform their work.

Have a pressing question you’d like us to consider? Please leave it in the comments section. We encourage you and our expert bloggers to add comments, contributing to the national dialogue on solutions for the future of the housing sector. Expert bloggers are not members of the BPC Housing Commission.

Any views expressed on this forum do not necessarily represent the views of the Housing Commission, its Co-Chairs, or the Bipartisan Policy Center.

2012-09-06 00:00:00

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