Increasing foreclosures — including in Lane County — sent big national banks teetering, the economy dropping and required billion-dollar bailouts that taxpayers will shoulder for years, if not decades, to come.
Some spread the blame for creating the toxic home loans far and wide.
“Who’s to blame? Every one of us: The investor who created the loan, the banks that offered it, underwrote it and funded it, the mortgage broker who did it,” said Shelley Aldrich, owner of Eugene-based Grandeur Financial. “Everybody knew what was going on. There was not a person who wasn’t aware. We’re all guilty.”
Others insist some participants in the departed mortgage boom — among them investors, banks, brokers and borrowers — are a little guiltier than others.
Investors
Eugene real estate broker Erick Harpole said this “colossal mess” could not have developed without Wall Street investors deciding that mortgage lending was the ticket to a high rate of return.
“The top 1 or 2 percent of investors, their clear expectation is they are entitled to a 10, 12, 14 percent return on their money,” he said. “They’re entitled to that even though it’s way beyond inflation and it’s way beyond reality. … They pressured (investment) banks to come up with aggressive programs to get more and more loans, so that they could turn around and sell them based on the principle that real estate always goes up in value and the (mortgage) default rate is less than 1 percent.
“The greed was so rampant … common sense just went out the door.”
It was a fast-moving time, said David Tatman, administrator of the Oregon Division of Finance and Corporate Securities.
“People weren’t looking too close at the details. They thought the rising tide economically would take care of the details. They weren’t planning to hold the loan. They were a pass through. Financial services is where everyone gets a slice and moves it on down. Nobody stops and says, ‘I’m going to make sure this works right. That’s the problem, or it was.’ ”
Brokers
Mortgage brokers — working in stand-alone brokerages or at special desks within banks and credit unions — made loans as fast as they could sell them to wholesalers.
Brokers don’t have a fiduciary duty — a covenant to act in the client’s best interest — to a borrower the way a lawyer or a real estate agent does.
“Some lenders compensated brokers better than others so obviously brokers would push borrowers to those companies vs. the others,” Harpole said. “There was no accountability whatsoever for the broker. The wholesale lender was saying, ‘Here, package up what I need, I’ll take it to my underwriter and we’ll get an answer.’ The broker is out of the loop as soon as he gets paid.”
“There were people who could qualify for a loan, but if you had taken the time to really look at their net disposable income, the loan wasn’t in their best interest or would have a high likelihood of failure,” said Patrick Stevens, a Eugene attorney who represents banks in foreclosures.
Tatman said brokers accepted that making the poor loans was “the way the marketplace is currently operating.”
“ ‘We’re doing our part to promote the American Dream.’ That’s the positive spin to the way brokers did it,” Tatman said. “The negative spin is ‘The more loans I make the more money I make, and I don’t care about the outcome because I’m making money hand over fist.’ To be honest, the truth is somewhere in between.”
Some brokers suffered in the resulting downturn as much as anybody. About 60 percent of licensed brokers left the field in the past four years.
Some are suffering the same threat of foreclosure that’s befallen their customers.
“I’m a broker but I’m still a human being,” said mortgage broker Marcus Bodart, who recently renegotiated his home loan to avoid foreclosure. “I go out and earn a living and pay the mortgage and pay the bills. People run into problems and brokers are not immune. On the contrary, when people are on commission, in the good times they make a lot of money and in bad times it’s tough.”
Some people wonder where government regulators were through the period when brokers were closing ill-fitting home loans.
“We did not monitor this industry very well and we allowed them to take risks that weren’t reasonable. The government has some level of responsibility due to their failure to oversee this industry,” said John Helmick, the CEO of Gorilla Capital, which buys houses at weekly foreclosure auctions.
Borrowers
Borrowers have got to shoulder their share of the blame, said Fred Chamberlin, a broker at Alpine Mortgage in Eugene. “To be real honest, none of the people who bought these houses were forced into it. … If you couldn’t afford to buy it, why did you buy it?”
On the other hand, members of the general public buy a house about once every seven years and they don’t have the financial eduction to make good decisions about mortgages, Harpole said.They think: “If the bank says I can do this, it must be all right because the bank’s conservative. The bank wouldn’t gamble with my future,” he said.
“There’s a lot of people who were put in very bad situations because they did not truly understand what they were getting into, which is not an excuse. But they should never have had the option to get (the shaky loans),” he said.
Of course, borrowers are going to want the interest-only teaser payments, or the no down payment loan, Aldrich said. “When you offer those types of things, of course they’re going to take advantage of it. You can’t rent without first, last and security, and we were letting people buy homes without a dime. It was just ignorant.
“But I don’t make the mortgage programs out there. If they are available to us, and that’s what the lenders are telling (us) they have, that’s what you offer.”