Academic journal article ABA Banking Journal

The Wages of Folly Get Paid

Academic journal article ABA Banking Journal

The Wages of Folly Get Paid

Article excerpt

WHO SHOULD BE ENTITLED TO assistance in the current mortgage mess? The real estate speculator? The couple who overbought and opted for a 2/28 versus a 30-year fixed? The pension fund investment manager who bought CDO-backed commercial paper? An American Home Mortgage stockholder?

Forget it. But for people who were deliberately misled with false information and coercive ads and sales practices, or who, because of language, the impairments of age, or a lack of financial knowledge, were preyed upon, there is an obligation to help.

Whose obligation? We'll all end up paying the piper in one way or another, but to rely directly on taxpayers would be an outrage because of the huge profits thrown off from predatory and abusive mortgage lending before it collapsed. And also because not all borrowers, as noted above, were innocents led to the slaughter. Many of them went in "winking" as willing participants.

It is truly an unsavory stew of many ingredients.

As you read through our cover report (p.28) on how banks are dealing with this mess, you will notice how the circumstances and responses are often individual. In some cases banks have taken extraordinary measures--reaching out several times to noncustomers in trouble.

But as in medicine, sometimes the situation is too far gone. People are people and you cannot make them do the sensible thing. In many cases the loans were hopeless from day one. In other cases people waited too long to seek help, which means, because of the rules in place--credit scores, regulatory requirements, contractual issues, etc.--it often is impossible to do much. …

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