Atlanta based mortgage lender HomeBanc Corp has filed Chapter 11 bankruptcy according to an article by The Internation News. This adds to a long list of mortgage lenders filing for bankruptcy protection due to the meltdown in the real estate and mortgage lending market over the last year.
Although many industry analysts claim the damage will be limited to the subprime mortgage market, reasonable people should see the problem extends beyond the subprime market. A “perfect storm” of overzealous lending practices by mortgage lenders and willingness to incure additional debt by homeowners has lead to a potentially historic problem in the american real estate and lending market.
So who is to blame? The mortgage lenders, backed by Wall Street, who have hawked insidious mortgage products to every american consumer with a pulse for the last several years, or is it the american consumer himself, who’s seemingly insatiable appetite for more stuff, spurs a perpetual cycle of spending? Unlike the “kool-aid drinkers” on either side, I believe there is enough blame for all parties involved.
On one hand, consumers should be held responsible for making bad financial choices. We live in a nation full of freedoms, but with freedom comes responsibility. The american consumer (myself included) must begin making better financial decisions, and stop incurring unfeasable debt loads.
On the other hand, the real estate and mortgage lending industry has as much, if not more, responsibility than the consumer, due in part to their relentless marketing of nefarious mortgage products and their knowledge advantage (a business has at least some resposibility to advise customers about the buying decision; if you think not, can you say “snake-oil-salesman”?). In business, as in life, you reap what you sow. After years of pawning products with built in time-bombs (adjustable rate mortgages and the like), cracks in the facade are beginning to appear. Mortgage lenders are not only having to account for bad business decision, but also coming under fire for blatant violations of several consumer protections statutes such as TILA, RESPA and HOEPA. For additional reading on these consumer protection statutes, see Public Citizen’s Consumer Law and Policy Blog.
So what happens next? If I knew, I could make a lot of money, but like everyone else, I don’t know, but here’s what I think. The damage will not stop with the subprime market. Wall Street will be “shocked” at the losses because they were beyond “historical norms”. One day Wall Street might learn that a lot of small bad decisions does not reduce risk, it simply adds up to one big mess. Fortunately, in the end, I believe that even with all their faults, the american market and the american consumer will survive, thrive and hopefully learn a valuable lesson from the past several years…I hope I have.