We're still not backing down from pushing a healthy dose of the blame for the mortgage crisis on consumers who overextended themselves. When a recent piece on Capital One aired, an middle-aged couple explained how the credit card giant kept offering them cards even though they were overextended and couldn't pay their existing cards.
Let's be clear, and let's be smart consumers.
Stop digging when you're in a hole. The slanted piece somehow blamed CapOne instead of irresponsible consumers who kept applying for credit cards they couldn't afford to pay. The same issue is rampant in the subprime mortgage crisis that is damaging the American economy. Banks and financial institutions sell mortgage and other financial products. If you can't afford them, you shouldn't be applying, much less accepting, them.
That said, Countrywide Financial (NYSE: CFC), the nation's largest mortgage lender, has announced that it will proactively rewrite more than 80,000 mortgages. The amount is an unfathomable number with a lot of zeroes. This is after Countrywide was forced to grasp at an $11 billion line of credit offered by Bank of America and after thousands of people lost their jobs.
Consumer advocates have been excessively critical of the mortgage lending industry for making loans to consumers who may not have been unable to pay them back. We think that forces too much responsibility at the business world. If a consumer has diabetes, one shouldn't sue the baker for making lovely cakes and pies available. Likewise, if a consumer has a driver's license that restricts night driving, don't go after the auto manufacturer for putting headlights on the car.
Consumers knew or should have known the risks involved with a variable mortgage. Many seemed positively snobbish about the low, low, low rates they were receiving. The smart consumers we knew all either planned to sell before the first adjustment period and needed a place to park the proceeds of their previous sale or locked into a fixed rate.
We're reminded of one of the smartest people we know who once asked us, "Should I apply for a 30 year or 15 year fixed mortgage?" Our answer remains the same: why lock in a higher rate when, with discipline, you can create even less than a 15 year mortgage provided you don't have a pre-payment penalty for some reason.
This is all opinion from consumer advocates, not financial advice from any sort of planners or consultants. You should talk with a professional before becoming involved in a mortgage. And if you can't afford one, look in the government listings of your telephone book for a local or state agency who can help you.
But don't sign for a mortgage you may not be able to afford in the future and then chastise the company for offering you the opportunity. Perhaps the biggest part of being a smart consumer is knowing when to say "no". And if you don't have the knowledge, find a professional who does.
Meanwhile, hats off to Countrywide for being a smart consumer-friendly company. Yes, they are taking a licking from those who want to blame the fast food restaurant for serving hot coffee. We prefer consumers take more responsibility and let us help them fight the battles against the companies who do them wrong.
If you think you were hurt in this recent financial crisis, think of the consumers who no longer have a job because Countrywide laid them off. And think of the small investors who owned CFC as part of their retirement funds, and saw the healthy stock's value get halved.
And put down the doughnut unless you're planning to work out later.
Labels: Countrywide, credit, financial, mortgage
