Countrywide hijinks: Part Two

I think I was a little too easy on Countrywide Financial yesterday. While I think talk of "predatory lending" is excessive - homeowners have a duty to study the terms of their loans - Countrywide and its mortgage broker confederates used too much trickery for my comfort.

I did a little after-hours research and found a noxious example from my neighborhood. Some details:

The borrowers are an immigrant couple with a limited command of English. They both work and make a decent middle-class income. When they bought their house, Countrywide, via the builder's mortgage division, offered them an adjustable rate mortgage starting at about 7 percent.

But by next year their rate, after a series of mini jumps, will rocket to 14 percent. 

Fourteen percent? We're talking Larry the Loan Shark territory.

The couple didn't know their rate would double. Back in 2006 when they bought the house, they just wanted to close the deal fast and painlessly. If they made a mistake it was their failure to get the important documents translated into their native language.

The punchline of this joke is that Countrywide will never get its 14 percent. The homeowners are upside down on their mortgage and owe $50,000 more than the home's worth in this depressed market. They'll just walk away. And who can blame them?

Don't get me wrong: The bulk of Countrywide's mortgages are legit. But you have to admit that in the tug of war between business ethics and short-term greed, ethics often landed face down in the sand.   

Comments

[Al]

There's NO SUCH THING as predatory lending. A house, unlike food or clothing, is a voluntary purchase. No one forced them to accept the loan or to use that lender. Let me repeat: No one forces you to buy a house, and no one has to.

If they didn't know the rate would double, they shouldn't have signed the documents.

Just wanting to get it done "fast and painlessly" isn't an excuse. If I went to a foreign country and bought real estate using documents that were written in a language I didn't understand, would you consider me a victim?

[Ric]

If this happened to me, I would blame just three people: me, myself, and I.

[James Thorner]

My main complaint against Countrywide in this case is that better rates were available, owing to these borrowers' employment history and middle-of-the-road credit, and they were steered unwittingly into this junk. The broker, who should have sought out the best deal possible, seemed to take advantage of their poor English to make them a crappy deal. I'm sure it was all about the big commission, the client be damned. That's my opinion in any case. It's not illegal. I just think it's unethical. Countrywide's a big, well-known company. It shouldn't be charging the same usurious rates hard money lenders charge. But I agree that "predatory loan" talk is usually a sign a politician's playing for votes. A 9 percent subprime loan isn't predatory even if the homeowner can no longer afford the payments.

[Fuzzy Bear]

But you have to admit that in the tug of war between business ethics and short-term greed, ethics often landed face down in the sand.

The business ethics were long gone before it landed face down in the sand face down!

Al says, There's NO SUCH THING as predatory lending.

Predatory lending is very active and had been in full force during the housing boom years. Predatory lenders prey on the uneducated and unsuspecting consumers who do not do their research or seek out professional advice prior to signing legal documents.

[Sweaty Teddy]

I have had mortage brokers tell me to my face that they don't always give the borrower the lender that has the lowest rates and/or fees. They give the borrower the lender that rebates the most money to the broker.

That's why I have ALWAYS brought three lenders down to the wire and looked at the closing documents at least 48 hours prior to closing. That way, if I didn't like my preferred lender's terms in the final lopan package, I could pull the rip cord and kick Lender A aside and go with Lender B or C.

[Al]

Sorry, Fuzzy, no one forces anyone to take out a house loan. It's completely illogical to think that anyone other than yourself is acting in your best interests, especially in a six-figure business deal.

[Tino]

Sweaty Teddy is right on the money, and I'm glad that James is finally laying off the "predatory lender" myth.

Yes, Countrywide Mortgage employees are greasy. The one and only time I dealt with them I was handed mortgage docs 48 hours before my closing that tried to sneak in a prepayment penalty.

After calling the loan officer (and her supervisor) out with a number of words unprintable in a family blog, I walked to another lender.

Were they unethical and slimy? Sure. But I read my docs before I signed them, caught it, and took my business elsewhere.

That's called acting like a responsible adult. I suppose I could have just signed them and cried like a 5 year old later. If you do not feel like you can handle reading contract docs, hire an attorney to assist you or don't sign them. It's pretty simple.

Oh, and it's the law. You sign it -- you agree to it.

[James Thorner]

As you guys all probably know, brokers are paid "in the back" by lenders. As a general rule, the higher the interest rate, the higher the pay off for brokers. That's fine and good if the broker is delivering the best rate to the customer. But unethical brokers will slip in prepayment penalties, higher rates, etc. I agree it's the borrower's duty to ask, but we're assuming everyone's as sophisticated as the people on this blog are. I get calls every week from people who aren't that sophisticated. Is there no protection for them? At a minimum, all loans need a disclosure statement outlining the payout to the brokers. If I'm not mistaken, the gov't mandated such a requirement during the past year. Good reform.

[Lenny Gurvich]

"they just wanted to close the deal fast and painlessly"

Such was the case for many borrowers back then. With prices rising for so many years, many just did not consider what would happen IF values went down. Terms did not matter as long as a refi was an option. The mentality that such easy money created was really disgusting.

[Fuzzy Bear]

Sorry, Fuzzy, no one forces anyone to take out a house loan.

I agree that nobody forces the consumer to take out a loan. Where I disagree is your point that there is no such thing as predatory lending. If you have ever investigated a case involving predatory lending, you would see that it is alive and in full force.

Predatory lenders prey on the unsuspecting consumer who either does not do their homework or lacks the education to understand the details. I do agree with you on the point that it is up to the consumer to fully understand what is written in the documents as they are agreeing to the terms.

The consumer does have a choice, they can simply hire an attorney to review the documents and advise them on how to proceed. Sweaty Teddy sums it up perfectly, the consumer should get at least three bids for their mortgage. That helps mitigate the chance of falling victim to predatory lending.

[Sweaty Teddy]

Fuzzy sez: Predatory lenders prey on the unsuspecting consumer who either does not do their homework or lacks the education to understand the detail.

Wrong. No one can take advantage of you without your permission. And being unprepared and not reading contracts is tantamount to giving permission to be taken advantage of.

[Fuzzy Bear]

Wrong. No one can take advantage of you without your permission.

I disagree with you on this topic simply based upon my experience in law enforcement. I have seen enough con artists take advantage of even the most intelligent individuals, even when they read the contracts.

[dinesh]

Slate's Culture Gabfest, with Stephen Metcalf, Dana Stevens, and Julia Turner. In this week's edition, our critics discuss the viability of personal virtue to solve global warming, the possible failure of personal virtue in the travel writing business and the utter failure of personal virtue inside Abu Ghraib prison.
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Dinesh

http://www.fastrealestate.net