Addressing The Mortgage Mess
When I bought my house in the Midwood section of Brooklyn in the mid 1970's, all of Brooklyn was redlined, crime was high and the city was on the verge of bankruptcy. The banks didn't look at neighborhoods they just saw Brooklyn as one place like the TV show (Welcome Back Kotter). They saw apartments and subways not tree lined blocks.
It was the bank loan officers' sole responsibility to insure that the bank's interest was not overextended and that was as it should have been considering the risks at hand.
Layoffs of city workers followed including cops and fireman. It wasn't till after the David Dinkins (1990-1993) administration that the city started to rebound. So because Brooklyn was redlined I was required to put down close to 35 percent of the purchase price in order to qualify for a mortgage with the Dime Savings Bank. So we saved harder and invested in our city hoping it would rebound. The home buyer took a big chunk of the risk along with the bank.
We all know the rest, pressure from community groups (Acorn, etc.) put so much pressure on our government stating that banks were discriminating against the poor. So Congress enacted
Letters bills which forced banks to throw the loan officer job out the window with the dish water and the rest is history, zero down, one hundred percent financing.
The new homebuyer assumed a minimal or no risk. The fact that his only obligation was a higher mortgage payment with limited documentation on his ability to repay.
It's easy to see how some might have been misled, but many other individuals flipped these homes in the upswing and made millions along with some builders.
Now were in a mess and were told folks like us who have paid their mortgage payments on time for over 40 years must bail out these institutions and it's mainly because of the government's policy of intruding on what should have been solely the bank loan officers responsibility to the bank's board and it's shareholders.