The best solution to the current mortgage crisis (and prevention of the next one) is:
[a] smarter borrowers
[b] more governmental regulation
[c] smarter lenders
[d] there is no crisis. Freedom includes both good and bad times.
[e] all of the above
A very good answer is [d]. Bravo and applause to all who believe this to be true, for it will be you and yours who already see the opportunity amidst the chaos. Savvy free-marketers will have the faith, experience and education to know that now is the time to buy and invest. The basic business tenet is to buy low and sell high.
A closely related business tenet is to provide pain relief. Where there is pain, there is profit. Throughout American capitalistic history, marketers have made fortunes by making our lives easier. Business has provided us cars. Business has provided us heat and air-conditioning, and computers and roofing shingles and cereal. Everything we use to thrive and survive was provided by business and most every item was a response to a pain, as noticed and capitalized upon by free marketers.
The overall American economy is incredibly diverse geographically and materialistically. The range of products, industries and markets in this country is almost unfathomable. A sector may be suffering but there are other sectors that are not. But, when one sector does suffer, we broadcast that news loud and often, as a cry for help. We are asking for the free-marketers to look and see what fortune reversing opportunities might be started.
Right now, homes are selling less frequently and at lower prices. Mortgages are not as available as they were and some folks have mortgages that they cannot afford to pay. To some, these pains are opportunity not crisis. Bravo to the free marketers!
Another very good answer is [a] smarter borrowers. America is you and me. We are the land of the free, the home of the brave and all of us, created equal. America is the sum of individual players and we can and should play a little better. If I enter into a financial contract that either I do not understand or I cannot afford, am I not at fault? Those of us who now cannot afford our mortgages, were any of us forced to sign? Did we not enter into these agreements per our own free will? To some extent, we the people have contributed to the crisis / opportunity. Can we perhaps not do this again?
Lesson #1 --- Can we borrowers learn something about what we can afford? Let us all understand that we are not entitled to a raise every 6 or 12 months and that our income tomorrow is not guaranteed and it is certainly not guaranteed to be more than it is today. And most things become more expensive, not less. Tomorrow holds no guarantee of more income or less expense.
Lesson #2 --- Can we decline that which we don’t understand? Much is being made of ARMs right now. A-R-M is an abbreviation for adjustable rate mortgage. The key word here is adjustable and the loan agreements spell out exactly what adjustments will occur and when. If upon reading these terms of adjustment, we do not understand them, let’s not accept them. I wonder what this current situation would be if all those who did not understand their ARM, would have said, “sorry. I do not understand the terms of this loan, may I please have some terms that I do understand?” We borrowers can be smarter.
A bad answer is [b], more governmental regs. (The word “more” makes this a bad answer. If the option was “improved” or “simplified”, then this answer would have some merit.) The mortgage business is over-regulated already and the result is 50+ pages of disclosures that have been specifically designed and worded by our government. These documents, lengthy and hard to read, have also contributed to this crisis/opportunity. Borrowers arrive at the closing table and meet the closing agent who is sitting next to a stack of papers, many inches high. This agent has several closings to do today and reading / explaining all of these docs is laborious, to say the least. But, in the case of a refinance, we borrowers have 3 days to change our mind. We can take these documents home to read at our leisure and after the first paragraph, we surrender. What did that sentence say?
Instead of more governmental regs, what might be better is a streamlining of all the current ones. Fewer docs and fewer words, written in user-friendly fashion would be a great start.
An interesting choice is [c], smarter lenders. If we think that this is the best choice, are we not surrendering our freedom? I am pretty sure that most Americans prefer to make our own decisions. We do not like to be told what we can or cannot do. We love our freedom. But if we think that the lenders caused this, or if they had made better decisions or if they had educated us more or if they had protected us from ourselves, then are we not saying that we are unable to make our own decision?
Lenders are somewhat hamstrung by governmental regulations. Lenders must use the forms and words as dictated by our government and these efforts, though legally complete and correct are not helpful to the borrower. Could the lenders have done more to help explain these products and disclosures? Yes. For example, in addition to these legalistic disclosures, perhaps informal disclosures could also be developed and used? Perhaps power point type presentations of each disclosure could be on a disc, complete with user-friendly translation. Going the extra mile to explain might be a competitive advantage, which is being smarter and also, easing a pain.
The best and final answer is [e] all of the above. Freedom is the basis of American life. We are free to make our own decisions. To buy or not to buy, that is the real question. We are huge and hugely diverse; one man’s ceiling is another mans floor. Seldom, very seldom do we have vast majorities of people moving in the same direction at the same time. We are diverse and our diversity is our stability. From this crisis/opportunity, many of us will learn to be better borrowers. Some of us will become better lenders. Some of us will push for regulatory adjustments and some of us will see the opportunities and create new profit making ventures. And to get all of these actions in motion, we will broadcast a crisis, because, bad news is opportunity, in America. USA, USA USA . . . .
Steve Gatter is a veteran of the mortgage loan industry and a leading sales management executive with more than 20 years of expertise in customercentric B2B sales, ethics, business operations, and strategic planning.
