We have met the enemy, and he is us.
---Walt Kelly
A former client, Pat Dalrymple, who for many years was the president of a savings banks headquartered in Greenwood Village, Colorado (a suburb of Denver), and before that one located is Aspen, wrote an opinion piece that was published in yesterday's Glenwood Springs Independent (Glenwood Springs is located on the Western slope of Colorado, near where Pat resides) in which Pat takes a sober look at the causes of the mortgage meltdown and tells it like he sees it. He doesn't spare "greedy lenders and lax regulators." However, he also doesn't spare others involved in this mess, especially not greedy homeowners who, in many cases, were hip-deep in the middle of the wrong-doing.
It's a myth that the homeowners of America were the innocent victims of unscrupulous mortgage lenders. The bankers had a lot of help; the crisis was “Made in the USA”, and it was an American team effort.
His last bank operated primarily as a single family mortgage broker, originating and selling loans into the secondary market. In that capacity, he had a center ring seat to the entire circus. Unfortunately, the circus went bust and nobody ended up laughing.
While unsparing in his criticism of lenders ("It got so that, if a borrower had a pulse, a mortgage was available") and other participants, including investors, brokers, and appraisers, you can tell that he's especially irked by what he calls the myth of the innocent borrower. Those are the folks who are the object of much wailing and gnashing of teeth in certain quarters, along with calls for their wholesale rescue (also known as "systematic loan modifications") to ease the pain of these innocent bystanders. Pat has some perspective from his own former bank's sad experience that demonstrates that finding truly innocent borrowers in this debacle might be like trying to find a "clean and sober" spectator at Metallica concert.
In August 2007 our bank had some 81 problem loans. These were mortgages that the bank had to buy back because they were in default, or were actually in foreclosure. Of these, 44 were instances of outright borrower fraud, 51 percent. (Many of the rest involved appraiser, broker or title company fraud. As I said, this was a team effort.)
About this time I got a phone call from a lady who said that her attorney had advised her to call the FBI and her lender to inform them why her loan was in default. She said she'd attended a seminar at which she was enlisted in a scam to qualify for a mortgage to “save a poor person's house”. She would certify that she occupied the home, but she'd never have to move in or make a payment. Rent would be collected by the entity masterminding the scam, and payments would be made to the lender. She was somewhat bitter that she'd been defrauded. I said, “Well, ma'am, I guess you committed fraud, too”.
“I guess I did,” she said.
There are a million stories in the naked city of borrower fraud. This was one of them.
We're in the middle of this muddle and dispassionate perspectives are hard to come by. It will be of interest to many of us (if we live that long) to look back after the dust has settled and the blame game has abated, to see how much culpability for the meltdown is apportioned to which participants. Currently, I buy Pat's view: it was a team effort.
As for the "innocent bystanders," I'm reminded of a most excellent meditation on that theme by the late Warren Zevon. From a performance that aired on the BBC on Christmas Day, 1994, Warren utters the plaintive cry of all rats caught in a trap of their own making: "Send Lawyers, Guns and Money."
