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Every compelling story has its villain, and in today's headlines the villain of the hour is the subprime lender, the veritable big bad wolf at the door. The wave of mortgage defaults in the wake of what was the housing boom has the media, the public, and politicians crying foul over foreclosures against loans that, in many cases, should never have been made. One should question, however, why all the blame is being heaped onto the backs of mortgage companies. The implication is that all of these defaulting borrowers were innocent lambs herded into slaughter by the fanged wolves that are predatory lenders. After being fattened up by loans with negative amortization, interest-only payments, and loans requiring no documentation of income, there's no doubt that many recent homebuyers who opted for these financing instruments are now in deep financial doo-doo. Yes, the lenders eagerly supplied the shovels, but who dug the hole? Who decided to build the biggest financial decision of their lives on a foundation of sticks and straw, only now to watch it be blown in by a huff and a puff? To be sure, lenders are to blame for creating their own financial woes. Many smaller mortgage companies like Ownit Mortgage Solutions have folded, or like New Century Financial, are teetering on bankruptcy. They happily handed out money to the throngs who beat down theirs doors, many of whom had no business buying a house in the first place. The most egregious of subprime flavors comes in the form of the stated income loan, a loan requiring little or no documentation from the borrower to prove his ability to actually repay it. Commonly derided as "liar loans," these accounted for nearly half of all subprime mortgages in 2006, with more than half of them overstating income by 50 percent. Borrowers, in their eagerness to buy, provided the lies, while brokers and loan officers looked the other way to get their commission. What of those who claim they didn't understand what they were getting into? Yes, of course, there are unscrupulous practices that occur in the lending industry, as there are in any field of business, and there are likely a good number of brokers and loan officers out there who did dupe their clients into over-extending themselves. Are we to believe, however, that every foreclosure now is the end result of a swindle? Where was the due diligence from buyers? When we go to buy a used car, we expect to get screwed, and we are on our guard. Caveat emptor - let the buyer beware - is the principle of commerce, even if not known to us by name, at the forefront of our thinking when we walk on the lot. Why do so many of us abandon this thinking when we enter the offices of the mortgage broker or loan officer? Loans are just products, and the people offering them to us are salespeople, and they are in business to make a profit. There's nothing with that. We need to remember, however, that the broker is not our mommy, or our nanny, or our doctor - there to take care of us so that we don't have to. Pardon my heresy for not wanting to pick up a torch and pitchfork and join the mob that has formed at the gates of the lending industry, but what happened to individual responsibility? Before we fall all over ourselves in weepy sentimentality and pass umpteen laws to run to the rescue of the hapless, doe-eyed victims, perhaps we should think twice and make a sobering assessment about where the guilt lies. This backlash is analogous to the blowback against the fast food industry. America woke up one morning, found itself obese and out of shape, and pointed accusations at the franchises that have satisfied our cravings. Excuse me, but who's been shoveling super-size combo meals into our gaping maws? The environment which we ourselves have created is one of instant gratification. We want it, and we want it now, and whether or not we can truly afford it is immaterial. In the boom of escalating housing prices, the belief reigned that if you ran into trouble, you could just sell to the next guy for even more. For now, that door is closed. The party's over, and the bills are coming due. Ultimately, the current fallout from subprime lending is only the latest symptom of a deeper American malady, a widespread and reckless abandonment of savings and a refusal to live within our means. Revisiting our fairy tale metaphor, it's high time we little pigs stick to bricks, not straw and sticks.
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