Could we not blame the subprime problems on the lack of basic math knowlege of American Consumers?

Question

Who promoted these folks past 4th grade? By 4th grade you should have addition and subtraction down - you should even be able to multiply. If you cannot make a budget for yourself you need to find someone who can, right?

It seems odd that folks are focusing on lenders who did actually disclose the consequences of the loan. If these bump up rates were not in the contracts (that were signed by consumers) the lenders would not be able to impliment these rates.

Perhaps the best solution is to not forgive any debt regardless of forclosure or otherwise. Let folks live with the burden and perhaps they will not repeat the mistake. Folks might even teach their kids how to budget.

Folks might also learn that they need to have more than one weeks spare income....to live within your means no matter how much you have.

I would live in a tent (and have) before I borrow more than I can pay.

The lack of basic knowledge amoung a few Americans can have worldwide economic consequences-bad.

Kind of interesting that I have to budget over 5% of my income to pay for local education, but the kids are never tought how to do taxes or make a budget they can live with.

"They are the most sophisticated people in this transaction they should be held responsible for their greed." - Are you serious? - that's the beginning of a long and dangerous road.

Answer 1

While the banks and mortgage lenders aggressively marketed these loans and, no doubt, buried the details deep in the fine print, that does not excuse the borrowers from their responsibility to know what they were getting into. Nobody forced them to sign the papers -- they did it themselves.

A few years ago you couldn't watch the news for more than a few minutes and not be reminded that mortgage rates were at 40 year lows. Common sense would indicate that they have only one way to go... UP! You don't need an MBA or degree in finance to figure that out. So why would anyone sign up for an adjustable rate mortgage? To "stretch" for more house? Because the monthly payment is a few bucks lower than a comparable fixed rate mortgage? Talk about short-sighted.

When I bought my house, I looked at how much we could afford to buy today, locked in at a low fixed rate, and am glad I did it. There was nothing complicated about the thought process... Just simple common sense. Unfortunately, these days, personal responsibility is a thing of the past and bad decisions are always being blamed on "someone else". It is unfortunate, and in the end, the taxpayers will end up footing the bill.

Answer 2

I am going to agree with bostonia's answer, however, this is one minor point i think he also missed, having been in the mortgage industry for 10 years, I am going to say again as i have mentioned on this site before, that we don't teach mortgage financing in schools, you would be surprised at how many professional people, doctors, lawyers, and teachers have no clue what a mortgage contract, title, deed, prepayment penalty, arm, libor rate, right of rescession, etc. are. i would bet a months pay most attorney's cannot tell you what libor is and how it works. yet it plays into the majority of the arm mortgages made in this country. attorney's for the most part are not financial consultants. this is not a slam on any career field, but on the fact that the lending instituions are out to make as much as they can, very few teach the consumer or explain to them what is going on. i think some of my success is that in 10 years of actively doing loans, i only closed one arm, and that was because the customer was adamant about it and the fact that they were only keeping the house for 3 years. once explained to the customer what the worse case scenario could be in a couple of years, and what would happened if they lost a job, had an illness, or damaged their credit during tht time frame vs. a fixed rate, everyone else when educated chose the fix rate even if it was higher. yes i made a good living in this field but never once did i have a complaint, and i sleep well at night knowing i did the right thing for my customers. how many did i close probably over 1000 in 10 years. sure i lost some deals who were convinced that other brokers could do a better job for a lesser rate with less fees, guess what those are the folks now in trouble, the shaddy lenders who i have seen go out of buisness over the last 3 years, what a laugh. we the loan officers sat there and took bets on how long they would last when they presented their sub prime deals and specifications to us to sell. yes we knew that eventually they would go belly up, the deals were made with no income verification, no job verification, appraisals were fudged, over equitizing homes was a standard practice, and everyone knew this was going on. lots of mortgage brokers fudged deals changed credit reports, etc. i have seen it done. this is what has caused the problems in our economy today. the state govts need to actively monitor all apects of the mortgage business in their states. this is a situation which i predict will continue to haunt as for 3-7 more years. hang on its going to get really bad in the next 6-18 months, as the arms come due between now and the summer of 2009.

Answer 3

The American dream is still to own your own home. And the lenders made that look possible to folks who had poor credit and bad money management skills. Yes while I agree, that our educational system is partly to blame, you could point fingers all the way down the line. I blame the system that didn't require our lenders associates to be held accountable to a higher standard of business practice. Like Realtors, they began with little or not experience, only hard sales abilities. While most made alot of money during the boom, most are no longer loan officers. In Minneapolis alone, 70% did not renew their requirements to continue operating as loan officers. What does that tell you? I put more blame on the lenders for not supervising their loan officers, and the loan officers with the quick tongues who made it too good to be true and folks fell for it. It is our responsibility to make sure the client understands all aspects of the transaction.

Answer 4

I hear that brother but I feel that the lending problems are more complex.
1) Yes, people need to be smarter and they have to take a huge part of the responsibility for this mess. Face it nothing like the pain of a foreclosure or bankruptcy to educate oneself, I know this from experience.
2) the banks and lenders will lend more money than someone can afford. They know the odds of someone fulfilling the loan obligations are remote but they still lend the money. They are the most sophisticated people in this transaction they should be held responsible for their greed.
3) The Realtors that worked with these people knew what was going on as they are the second most sophisticated people in the transaction and they did nothing to inform these people of the issues as they did not want to loose a sale, once again greed.

I have been a Realtor for 17 years, one of the first things I inform Clients of is that the banks will lend them far more money than they can afford. Make a budget for yourself with realistic numbers and see what works for you. I give them all of the new home costs, REAL NUMBERS, to help them understand. At this point if they point the gun at their foot it is on them.

Take care!
RJH

Answer 5

I completely agree with your point. People signed these things without ever considering what was going to happen when (not if) the rates started adjusting upwards. However, it gets worse than that in some cases.

I've lost track of the number of news stories about foreclosures in which the homeowner says "I didn't read the loan papers" or "I didn't understand the loan papers." What kind of an idiot puts their home at risk by signing papers that they didn't read or understand? If you don't understand them, get help from a friend or relative who does understand. Hire a lawyer to review the papers if you must.

There was a story on the local news about a couple who lost their home after they refinanced with a mortgage broker who they picked out of the phone book. They were interviewed as they were being evicted from the house. "We trusted him. We didn't read the papers." They blindly trusted someone who they picked out of the phone book???

Yes, there are companies out there that engaged in sleazy practices and should be held legally accountable. (Certainly not all of them, although the news media makes it sound that way.) Yes, our schools should teach essential skills like personal finance. However, people need to use some basic common sense. All the personal finance training in the world won't help if people won't even bother to read the loan documents. Unfortunately, you can't save people from themselves. They have to take some responsibility for their actions.

Answer 6

Have you actually sat down and READ a mortgage contract? Even a relatively fair and equitable one from a generally trustworthy lender? Have you actually sat through the high-pressure sales tactics that the B-Paper industry uses to push these folks to sign on the bottom line?

Before you start slamming people as 4th grade dropouts, have a look at what they were facing. I defy anyone without a college law degree (with a second major in mathematics) to make hide nor hair of one of those contracts.

Sure, if they retained an attorney they may have fared better but don't forget that these folks were all of very modest means and the extra few hundred for an attorney probably was not on the table. Add to that realtors and mortgage brokers all claiming, "You don't need no stinking LAWYER!" and it's little wonder that we're seeing the situation that we now are having to deal with. And don't forget that folks at the lower end of the educational and social strata have an innate distrust of attorneys -- most of their contact with them was for bill collection purposes or other negative actions -- so it's no surprise that they didn't retain an attorney even if they could afford one.

I've seen well educated, financially savvy folks fall victim to high-pressure sales tactics on timeshares. What makes you think that a couple of folks with high school educations will fare any better aginst the same high pressure tactics, especially as they were being sold The American Dream?

And don't forget that there are two losers in a foreclosure -- the buyer who loses their home AND the investor who backed the mortgage in the first place.

BTW, when was the last time you saw courses in basic personal finance at the high school or even the college level? For the most part, they simply don't exist. How are people supposed to gain that knowledge? Through osmosis?

Get off of your high horse and get a clear view from ground level before you start speaking in meaningless platitudes! Sheesh!

You can give me a thumbs down if you wish, but it changes nothing. If YOU can make sense out of the contracts and math and are strong enough to resist coordinated high-pressure sales tactics, good for you. You're part of 1/10% of the population that can.

Answer 7

It isn't just "math knowledge," its basic personal finance knowledge. I am constantly amazed at how many people don't even know how a credit card or checking account works.

All high schools should teach a basic personal financial management literacy - its as important as the "three R's."

Answer 8

excellent points.

i was raised in a large family and was always told to be mature and responsible with money as well as in life.

rock on.