Chris Skinner's blog

Shaping the future of finance

Credit Crash: final thoughts

Chris Skinner Author Avatar
by

Ah well, I can't leave the credit crash discussion
alone without a final mention of poor Mr. Jack and Mrs. Jill, the taxpaying
citizens who are now left carrying the can of the debt-fuelled crash. 

With the banks being bailed out by the central
banks, Mr. Jack and Mrs. Jill are suffering.  Many of these poor folks
purchased properties based upon easy access to a loan, and are now being squeezed
by the credit institutions who want their money paid back, as the housing
market falls even faster than Colin Farrell's and Paris Hilton's underwear
combined.

Take poor Mrs. Ortiz for example.  Her story
was exposed in the Washington Post over the weekend.  In summary, it goes
like this:

Mrs. Ortiz works for a Best Western as a cook and
lived in a cramped apartment, so she decides to get into the housing market
boom in 2005 by buying a run-down duplex house for $430,000.  The mortgage
will cost them $3,000 a month but, what the hey, as her husband and her bring
in $4,200 a month they'll get by (?).

Now the home is in foreclosure, the mortgage
company and person who sold her the mortgage have gone out of business and
she's on her way to court.  What a shame.

Mind you, on the downside for Mrs. Ortiz, she:

  • only looks at one house;
  • doesn't look around the market and compare things;
  • pays three times the price the house sold for only one year earlier;
  • pays $5,000 more than the asking price at the time;
  • doesn't speak English, but signs papers written in English that claim she is married to a man she doesn't know;
  • didn't get any advice from anyone who would know what she was getting into; and
  • was sold the policy by the woman next door who used to sell cosmetics and jewellery door-to-door.

According to the Center for
Responsible Lending
, 40% of loans to Latin-Americans fall into the subprime
zone and they believe one in five will fall into foreclosure, probably for the
reasons above.

A similar issue was highlighted by the BBC's Panorama programme last year.  Mind you, this
has been going on for years.  For example, take this
report
from 1999 on the BBC which states: "Lenders have been
criticised for imposing charges without having made clear to borrowers in
advance exactly what they would owe under conditions such as lock-in
clauses.  They have also come under fire for selling inappropriate
mortgages."

There's actually very little that's new in any of
this.  It's just basic human motivations. 

Q: Why did Mrs. Ortiz buy the house?
A: Because she wanted a nice house (and possibly thought she could make a
killing but got dumped on instead).


Q: Why did the cosmetics salewoman sell the house to someone she knew couldn't
afford it?
A: Because she thought she could make a killing (and did).

Q: Why did the mortgage firm provide a mortgage to a woman who couldn't afford
one?
A: Because they thought they could make a killing (and could offset the
risk).

Q: Why did the credit markets provide a vehicle to enable mortgage firms to
sell mortgages through rogue agents to people who couldn't afford them?
A: Because they thought they could make a killing (and did for many years
until liquidity dried up).

 

Who's at fault here really?
All of them.

 

UncategorizedCategories
Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

What is the future?

Learn more

Learn more about Chris

About Chris Skinner

The Past, Present And Future Of Banking, Finance And Technology

Fintech expert Chris Skinner: countries need digital transformation to remain competitive

Join me on Linkedin

Follow Me on X!

Hire Chris Skinner for dinners, workshops and more

Learn directly from from one of the most influential people in technology, gain insights from the world's most innovative companies, and build a global network.

Chris’s latest book

Chris Skinner’s ‘Digital For Good’ Book Launch Event – CFTE

Top 50 Global Thought Leaders and Influencers on FinTech 2023

Chris Skinner
Commentator, CEO of The Finanser and best-selling author at The Finanser

Thinkers360 Thought Leader

Contact Me

Global Awards

Lifetime Achievement Award

Global 100 - 2024 Winner

Chris Skinner - Financial Markets Advisor of the Year - The Finanser - UK 2023

Best Financial Markets Advisor of the Year 2023

30 Best Regtech Blogs and Websites 2023

Kids creating the future bank | TEDxAthens

Captain Cake and the Candy Crew

Captain Cake Winner of a Golden Mom’s Choice Award

TWO-TIME WINNER OF A MOM’S CHOICE GOLD AWARD!

Alex at the Financial Services

Gaping Void's Hugh MacLeod worked with the Finanser