When Builders Build Bad Loans
The billâs sponsor, Assemblyman V. Manuel Pérez, says the problem is that many consumers who bought homes from corporate builders ended up caught in a closed loop: forced by hard-sell tactics and deception to use the buildersâ in-house mortgage and title companies. The industry promotes the practice as a one-stop-shopping convenience that saves time and money. Too many homeowners found it did neither. They were pressured into buying overpriced homes with interest-only loans that they didnât understand and couldnât handle. When the bubble burst in Southern California, that was it for their dreams and homes.
New York Times
Editorial
When Builders Build Bad Loans
April 20, 2009
Even as the Obama administration struggles to find ways to help homeowners who are drowning in bad debt, more needs to be done to keep them out of the water in the first place.
A promising bill in the California Legislature would try to do that by going after a particularly troublesome practice of corporate home builders. It would prohibit them from doubling as lenders, issuing mortgages on the homes they build.
The billâs sponsor, Assemblyman V. Manuel Pérez, says the problem is that many consumers who bought homes from corporate builders ended up caught in a closed loop: forced by hard-sell tactics and deception to use the buildersâ in-house mortgage and title companies.
The industry promotes the practice as a one-stop-shopping convenience that saves time and money. Too many homeowners found it did neither. They were pressured into buying overpriced homes with interest-only loans that they didnât understand and couldnât handle. When the bubble burst in Southern California, that was it for their dreams and homes.
Homeowner advocates say that the system is rigged against the consumer, riddled with inherent conflicts of interest. What in-house appraiser is going to scrupulously and honestly assess a homeâs value, especially if the market begins to tank? If a lender is connected to a home builder, it is going to try to find any way possible to make that loan, since making that loan means selling that house.
That sign-âem-up-at-all-costs impulse, advocates say, is how patently unqualified buyers in the sprawled-out Inland Empire and Coachella Valley were pushed into exotic and risky forms of lending. Those included interest-only loans that were affordable for a few years, but then exploded with single balloon payments of tens of thousands of dollars. By then, the house and loan had been sold, and the builders had moved on to other suckers.
http://www.nytimes.com/2009/04/21/opinion/21tues3.html?_r=2
|