Who is the blame for credit crunch and mortgage meltdown?

Who is to blame for the credit crunch and Wall Street meltdown? I believe that there is plenty to go around. There are four parties that should share the majority of the responsibility. They are the government, lenders, brokers/realtors, and the homeowners. The burden is not equally distributed. I believe that the less of the burden falls on the brokers and realtors than on the others. Let us look at each and see what their role was.

First is the government. The federal government has been for the last 10 years wanting more homeownership, especially for the lower income people. Every President (Bush 41, Clinton and Bush 43) in their State of the Union Addresses have all profoundly stated this with resounding applause from everyone in the gallery regardless of which side of the isle they sat? For whatever reason, lower income people seem to have less than stellar credit. So, to qualify them for loans (regardless if they are back by the government), you have to loosen the criteria for qualifying for the loan. Congress (Barney Frank et al) did nothing to rope in the run-amuck GSE’s (Fannie Mae and Freddie Mac).

With pressure from Washington, comes our next participant, the lender. The lenders hearing what our elected officials wanted began creating so very creative loans and greatly relaxed their lending criteria. Some of these loans include 2/28 and 3/27 ARM’s, 100%, interest only, buy-downs, and my favorite “pick-a-pay”. You have heard these advertised for the last 5 years. I know that some of these loans have been around for a longtime, but for a very sophisticated client. However, the problem arises when the wrong type of borrower gets one of these loans; and, they are not very discipline in the managing their money.

With these loan programs in hand, the lender sends out their account managers to mortgage brokers to sell them. The mortgage brokers can now refinance very marginal borrowers and help the Realtors© sell more homes. Of course, the Realtors© get really excited because they have a new batch of clients to go after. Working together, the mortgage brokers and Realtors© sell these loans to this new batch of home buyers. Now, as I said before, the realtors and mortgage brokers are less to blame than the other parties. Blaming them is like blaming a car dealer for selling the Pinto when Ford was building it and the government pushing for higher mileage cars.

The last party is that of the borrower or buyer. This party has seemed to receive no or very little blame at all. They get the most sympathy and some are looking to be bailed out. The media and Congress think that these people are ignorant and had the wool pulled over their eyes. I disagree. Every closing that me or my company has done over the last five years (which is almost 5,000), those borrower knew exactly what kind of loan that they were getting and what the conditions were. They new the risk and took it. Their life situation may have changed; or, more than likely, they did not follow the advice given to them about not running up their debt again. Now, they want to be bailed out.

There is plenty of blame to go around. This is a major correction cycle. The best way to get through it is to ride it out. The worst thing that could happen is for Congress to make a knee-jerk reaction and pass some over bearing law that will REALLY kill the industry.