Der Spiegel scrutinizes the US mortgage meltdown in depth

I 100% agree with that quoted text. Some of the other points brought up are less valid, but Americans as a people are very reckless financially. It's a fact that dumb Americans spending more than they could on subprime mortgages caused the housing bubble and proceeding burst. And what did us Americans do with the tax rebates meant to stimulate spending? Did we pump the money back into the economy through investments and increased spending and right ourselves? NO! We chose to keep the money or pay off debts (which eventually reaches China, NOT the US economy), both of which did nothing for our economy. Instead of listening to Ben Bernanke and the entire Federal Reserve, we decided that each individual person would be as greedy as possible and dig ourselves into this hole even deeper.

Some of it has to do with improper regulation with the mortgage-backed securities, but Americans in general were entering into mortgages that were four or five times too big for their income, and refinancnig because the increasing housing prices meant their houses were always worth more than their abolsutely ridiculous loans. Then when the prices eventually regressed back to the mean, those people were left with houses worth half as much as their mortgages. Honestly, who actually believed housing prices would continue to rise at record levels forever? Us dumb Americans, that's who!

Sorry, we just discussed the subprime mortgage crisis in one of my finance classes and had some pretty heated debates on it lol.

Before anyone blames the government or politics for starting this all, when does it become our responsibility to look out for ourselves? Who here would honestly get into a two or three year fixed rate mortgage followed by 27 or 28 years of variable rates? Every person who signs a mortgage knows what they are getting into. You can't blame your broker either, as it is YOUR RESPONSIBILITY. Brokers get a set fee for every mortgage they push through, they don't care one bit if you can repay your mortgage or not. People love to yell at the government for causing these messes, but I think it's our fault when we blindly follow like sheep, choosing to blame others when we run into problems rather than actively avoiding them ourselves.

Then there are either a lot of dumb Americans out there, or perhaps just gullible Americans. The last time I bought a house, I went to a mortgage broker to get pre-approved for a loan. He told me I qualified for a loan 4 times what I wanted to spend for a house, and when I told him I wasn't interested in that amount of money, he actually argued with me to buy the more expensive house. His rational was that it was a good investment, and I would get higher tax deductions. His closing comment about my decision was "if that's what you want, but I think you are making a mistake".

I disagree with your statement about people knowing what they are getting into. I worked in credit for 10 years so know the system, but I am a very rare exception. If a mortgage "expert" tells you that you can afford something, you tend to side with the expert.

People are responsible for their debt, but they were also encouraged by the culture that surrounded them to spend more than they could afford. I blame the mortgage industry playing on the gullibility of people for the crisis, and poor regulations of that industry in allowing them to do this.

Well, like I said, mortgage brokers get paid a fee for mortgages, regardless of your financial outlook. They don't have your best interests at heart. In fact, their interests are directly out of line with your own as you are looking to minimize costs while they are looking to maximize their fees. It's back to the old "if everyone jumped off a bridge, would you?" argument, and I am saying Americans SHOULD know what they are getting into because they should research it beforehand. A mortgage broker may tell you one thing, but if you have done your research you will know what a fair rate is and what is extreme.

Your explanation uses the system as a scapegoat when it is for us that the system was created. When you buy a new car, do you research different selling prices to determine the best deal and go in to the showroom with that in your mind? YES, if you want ma good deal. It's the same with mortgages. Yes it's time consuming, but it is also necessary. It's not as easy as "I want a mortgage, I'm going to go to the broker and accept whatever they tell me." It's about addding a bit of self.

Also, anyone who did spend 4 times more on a mortgage than they needed is ignorant, simple as that. If you want a TV, you don't buy the 50" plasma TV just because the best buy clerk is pushing it, do you? No, you buy the one you can afford. Maybe Americans aren't dumb, but we are the laziest people on the face of the Earth then. People don't research mortgages because they are lazy and can't be bothered, so we were left with a new scum in the world: mortgage brokers. That's why I am blaming Americans and saying they should know better: because they should!

I've bolded your point about "you buy the one you can afford" for a reason. Lenders qualified people for mortgages much higher than what they should have spent, and flat out told them that they could afford it. The lender that I worked with told me that I could afford 4X what I wanted to spend on a house. I could afford it, but I didn't want to invest that much money.

I've owned 4 homes and the general rules for the loan payment hasn't changed much in the last 30 years. They qualify you based on a loan payment being a certain percentage of your income (it used to be about 30%, but not sure if that has changed). That has been the exact equation they used with all 4 of my mortgages.

The housing market appeared to be going great and the unemployment rates were relatively stable. There wasn't a lot of reason for people to not invest at a level they could afford at the time, based on the specific information provided by lenders.

It isn't so much about researching mortgages as it is about researching the economy in general. You can shop around and find a lender with lower rates, but it was the inflated value of housing and the country's sense of economic security that fooled people. Tell me how many people saw that coming. The leading economic experts in the country failed to see it - how do you expect the average person to see it?

A ton. Even back in 2002 - 2006 when the housing market was peaking, many economists warned the Fed about them keeping interest rates so low and allowing this bubble to form so soon after the dot-com bubble had burst.

Also, that proves the only point I've been trying to make, that Americans are dumb financially. Nobody took a step back and said "Gee, this house I bought is now worth 5 times its original value, this must be how the trend will always be." It's literally the exact same thing that happened with the dot-com bubble, where nobody ever thought that the stock prices could fall, and I can basically guarantee it will happen again. I just get fed up with the herd mentality that says "since the government/mortgage brokers/whoever says housing prices will always go up, they must" and then those same people blame the government when that goes wrong. We bought the snake oil, and we bought it by the barrel.


Oh, another point I just thought about, the vast majority of members on this forum will research their own vet's advice before giving a new drug or trying a new food with their cat, even if their vet is pushing extraordinarily hard for one specific treatment. If they don't, they'll just write a post here asking a member if they've heard about it. Why wouldn't you do the same thing with all aspects of your finances, considering you need your money to pay for your cat's food and medicine? Are you more likely to believe someone with a one year MBA degree than someone with a minimum six year DVM?

Yes we did. That's why I call people gullible rather than dumb.

In Canada we don't get tax breaks on our mortgages so it's in our best interest to pay them off as quickly as possible.

I do agree that people should and NEED to do their homework before making that large purchase. A house is probably the largest purchase the normal person will make and they should darn well be informed. It is not up to the broker or the bank or the realtor to educate the buyer. It is up to the buyer to do the homework and research.

When we were buying our first house, I did the math and knew exactly how much we could afford to pay for a mortgage each month and still have a bit left after other expenses to afford some recreation. The first real estate agent we got, who was actually recommended through a friend of ours, showed us probably the worst 4 houses she could find in the range I specified we were looking for. I told her if those were the only type we could afford that we would not be moving. She wanted to sell us a higher priced house so her commission would be larger. We got another agent and within 24 hours he had 4 houses to show us in the range we specified and we bought the 3rd one he showed us.

The answer is: they cannot afford such costly homes. That's the problem. It's really easy to blame the bank, the realtor, HGTV, etc., but it's really up to the buyer to do their homework before making any purchase and especially one as large as a house.

I don't understand it personally. How many people buy a Porsche instead of a Chevy when they know they cannot afford it? Not many, so why should a house purchase be any different. We all need to be responsible for our own choices.

But that's how I think brokers trick their customers. Just like car dealers, they try to sell you something at the highest monthly payment that you can afford. Where people's homework tends to fail is the expenses associated with a house (or car) in that higher price range. I've sold 3 houses, and only one buyer asked to see the monthly electric bill, so that they could estimate the ongoing upkeep cost of that house.

The other problem is that people assumed that they would continue to work at their current income levels, and the price of everything else wouldn't rise. Combine the high unemployment, the crazy inflation right now, and high property taxes, and bankruptcies don't surprise me.

I'm proud to say that I bought a home 4 times less expensive than what a broker tried to sell me, and I was able to pay it off last year. But given the fact that I can't find a job at my previous salary, and the fact that both property taxes and utilities are on the rise, we may need to sell it only because we can't afford the ongoing expense.

These points are exactly what I mean by doing one's homework. Just as you would have to consider insurance and maintenance on a car plus gas which is crazy high these days before you purchase a car. You can either afford it or you can't. I just honestly feel that we don't have the right to blame our bad purchase on anyone but ourselves, especially high ticket items such as house/car, etc.

We need to step up and say "I made a mistake" rather than saying it's someone else's fault that I bought something way out of my price range.

I am convinced the proximate trigger for the meltdown and the succeeding recession was the sudden rise in gas prices.

So many people were in homes they really couldn't afford (subprime mortgages) that when the cost of getting to work suddenly went up, they had to choose between eating, getting to work, and paying the mortgage. The first two won out.

The other issue is that as home prices rose, people used their homes as a personal piggy bank. They took out equity loans to fund new cars, fancy vacations, and to pay credit card debt accumulated by living a lifestyle they couldn't afford.

I believe that some people used their equity because mortgage loan interest is tax-deductible while consumer interest (credit cards, autos, etc.) are not. We have Pres. Reagan to thank for that way back when he took credit for overhauling the tax code under the guise of reducing income taxes! I was a young married in those days, and I can tell you that our taxes increased under Reagan's tax cut to the wealthy. It sure didn't help us.

Now I'm not one who borrowed against their home for toys, cars and vacations. But I know people who did.

I think this mess was a perfect storm, created in part by our tax code, but also the government regulations that encouraged people to buy homes who could not afford them from the get-go, the practice of allowing stated income without checking, allowing interest only loans or worse no/low interest loans whereby the interest was tacked on the back end of the loan. Someone I used to work for bought a $450K home with a FICO score of 455 in 2006! This was accomplished by using a second interest only mortgage @ 12%. A year or so later the housing building boom was over, his business crashed, his house was only worth $250K and needless to say he lost it.

Bottom line is there is plenty of blame to go around. It may take years to recover the lost equity, but both potential buyers and lenders need to make responsible decisions to ensure this will never happen again.

If you did borrow against your equity, who would you blame - yourself or someone else? My point is that too often folks want to blame their own bad decisions on someone else. Nobody put a gun to their head and forced them to make bad choices.

In Canada when we apply for a mortgage, we have to have a letter from our company's HR office stating our income and signed by them to give to the bank/lending institution as part of our application for the mortgage. It precludes someone just lying about what they earn. And, I don't think that someone lying about their income to get a mortgage is anyone's fault except the person lying. It will come back (and has) to bite them in the buttocks.

I just feel very strongly that in today's world there is a lot of blame being transferred to someone else for our own bad decisions. Many people seem to constantly blame someone else for everything bad in their own lives. It's time to step up to the plate and realize that nobody put a gun to their heads and made them do it.

I agree with you. It begins with personal responsibility. I'm just saying that our government practices encouraged irresponsibility with regard to mortgages. Rules and regulations are meant to drive behavior and with no rules in place to prove you can actually pay for what you borrow, it is no wonder that irresponsible people would take advantage. It's like having a room full of candy and telling your 6 year old that he can't take "too many." You leave the room and you think the candy-loving kid isn't going to stuff his pockets?

Two points.

1) Until fairly recently, Texas was immune to at least some of this problem, since it was illegal to borrow against the equity in your home. The only way to increase the indebtedness against your home was to borrow the money to do actual improvements. There was a lot of agitation to repeal that law and "get with the trends in the country." A lot of people now regret it. A lot of banks now regret it, for that matter.

2) I met a woman from North Dallas on a cruise ship that sailed out of Galveston. She mentioned that she worked for Country Wide Mortgage in a department whose job was to get illegal aliens approved for mortgages. She said they used all sorts of tricks and had to do it to stay clear of the Community Reinvestment Act activists who were aggressively suing everyone making mortgages. At that point, I knew we were in for a rough ride in the not-too-distant future. The collapse was no surprise to me. The only thing I regret is not paying my mortgage down more so I could have used some cash and the sold my current house to get a lot more house for less money!