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.
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