the audit

Blame the Borrowers, Part 1,429

Is it Breakingviews or Bankingviews?
August 18, 2010

Reuters Breakingviews would like you to know that crazed borrowers are responsible for the housing crisis—or at least a good part of it—and it proposes a few ways to keep these low-lifes from getting mortgage companies to give them tens and hundreds of thousands of dollars at screw-job interest rates.

A big part of journalism is figuring out how to frame things. And while there were certainly abuses and fraud by borrowers during the bubble, it was encouraged and welcomed by the folks who held the pursestrings—you know, the ones who called their products “liar loans.” They had all the cards and they dealt them to their own perceived best interest. Borrowers took what they could get—and they very often got defrauded.

Thing is, all of Breakingviews’ recommendations apply to lenders just as well or more than they apply to borrowers. Or they benefit them at the expense of borrowers.

First, borrowers should have to make a healthy down payment.

Right. It was lenders who did away with down payments.

Second, lenders should concentrate on the borrower’s ability to repay the loan rather than on the potential increase in value of the property.

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Oops! The framing slipped a bit here. “Lenders should concentrate.” That’s the way the whole thing should have been written.

The last two recommendations actually propose to make the lending industry more powerful at the expense of borrowers:

Give lenders recourse to the borrower when a home loan goes sour, not just to the property…

A fourth idea would be to curtail the ability to refinance.

So if the lender screws up his underwriting, then it should be able to go after the borrower’s savings account and car? Good idea. And if interest rates go down, borrowers shouldn’t be able to shop for new loans? Bank heaven via Breakingviews!

Mortgage lending is not hard, dudes. Make sure the borrower can easily pay the monthly payment, get 15 percent or 20 percent down, and charge more in interest than it costs to borrow the money yourself. That’s the way it was for decades before the securitization-driven mania of the last decade took off in the absence of regulation, and things were fine. You know, 3-6-3.

The changes that caused the crisis were all on the lending side of things. That’s where the focus—and the frame—ought to be.

Further Reading

Boiler Room: The business press is missing the crooked heart of the credit crisis.

More on Hyped Atlantic Headlines: “Did Christianity Cause the Crash?” was a low point for the magazine—and a blame-the-borrower special.

Power Problem: The business press did everything but take on the institutions that brought down the financial system.

“Mean Street,” Indeed

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.