Spaghetti
Posted on March 21, 2007 - Filed Under Business |
As predictable as gravity, Barrons this weekend had a lot to say about the subprime market.
Last week, I talked briefly about this here. In this note, I stated that I lay the rise in defaults at the feet of the borrowers. But in this post, I squarely pointed to the loan officers.
Someone pointed this out to me.
While the two articles may be at odds with each other, I don’t consider the "melt-down" of last week to be attributed to one party but both parties. After reading the numerous articles written, the flow diagram for what is causing the problem is as convoluted as a plate of spaghetti.
Let’s narrow this point down: rise in defaults on mortgages.
I cannot absolve the borrower (customer) of responsibility. Yes, there are sharks out there putting anyone with a pulse into any type of loan. But ultimately, the loan is not funded until the borrower signs on the dotted line.
During my escrow process, my wrist was sore from penning my name on so many forms. Even with two margaritas in me, the aches from my forearm caused my signature to become nothing more than a squiggle. Even with all that, I still remember walking out of the escrow office with the monthly payment etched into my mind.
That and the horrendous bad breath of the escrow officer.
The only viable excuse one may have is when their variable interest rate adjusts in the future. Yes, today it is locked in at the unbelievably low 1%. But their paperwork says, in two years (or three) that the interest rate will be whatever the prime rate is. No one knows what the interest rate will be in three years. However that’s the risk of using these types of loans.
When the borrower (customer) inks their name onto the loan documents, they are accepting not only that risk but the responsibility that comes with it. They know going in what today will be and, more importantly, that the future is a complete mystery.
If you liked that post, then try these...
Vision Quest on November 13th, 2008
Things have been hectic this week.
Importance of Feedback on November 17th, 2008
"If I don't know what's wrong, I can't fix it.
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