This past Sunday morning, while I was watching “This week with George Stephanopoulos,” they were discussing the stock market and how subprime mortgages were impacting on it.  Columnist George Will, a regular on the show, said, “For every bad lender of bad loan someone borrowed it who wasn’t qualified to take the money.”  He went on to say, “What the market is doing is saying people are making foolish decisions – stop it.” 

He was implying that the people who were receiving the loans were trying to get something for nothing and didn’t mind taking advantage of those people willing to give them the money.

He felt that there should be no government help for them because if they do help now  future generations will expect that they can be bailed out no matter how “foolish “they are with their money.  The statements show, in today’s vernacular, there is great disconnect between people who have achieved their American dream and those who are struggling to do so.   

On the surface it might sound good, make people pay for their mistakes regardless of the circumstances.  But when think about it, it is really an elitist’s point of view. If we were talking about second homes, vacation homes or other high price items like house boats or motor homes, I would be more willing to agree with him, but he is talking about the American dream - to own your own home. 

In my mind he saying it is okay to convince a person that they can afford their own dream home.  Once you have them convinced they can afford it you take there money and make your profit from it then sell the note to others for more profit.  The people who buy those notes are well aware of the risk and them accordingly and make their profits.  Then they sell them once again to another investment company who also recognizes the risk of the notes and they make their money.

Then after everyone has made their money from that home owner living a dream, they say well we made a mistake and we should have never let them get into this, but they should have known better.  And, oh yes, our mistake – even though it is our job to know how to profit from money so we don’t loose – can be paid for by other people who have invested in us and the stock market as a whole.

I noticed that he didn’t say much about all the mortgage managers, and corporate offices who have already made their millions of dollars off these buyers.  I also noticed that we have no problem bailing out the airline industry every time they get in trouble.  (One of my biggest pet peeves is that the airline industry gets government help almost anytime they get in trouble, but the railroad industry seem to be ignored.) I also notice that they feel there is no reason they should bail out anyone who has been caught up in this Subprime failure.   

I real question is who is taking advantage of whom.  I also am a little bit up tight when anyone talks about people knowing better.  The average American does not stand a chance against an industry that spends millions of dollars to study everything associated with who buys a house and what helps them make the decision in an effort to convince the buyer that they can afford it. 

On top of that mortgage lenders spend billions of dollars more on everything from email to direct mail to television advertising all to convince the home dreamer of one of two things.  First, if they don’t buy their dream now they may never be able to afford one.  Secondly, they can afford to buy a home if they use one of the products the mortgage company is offering.

My folks bought there first home in 1943.  They bought it under a land contract and did so, on the spur of the moment.  My mom found the house, borrowed the down payment (I think it was $5.00) form her brother then told my dad about it.  It was 640 square foot house for $6,000.  At that time the average annual salary was $1,900. A new home cost approximately three times a persons income.

In 2005 the average income was $34,495, the average house was 2,330 square feet with a cost of approximately $180,000 more than five times a persons income.  It is easy to see why first time buyers would feel there chance of being able to fulfill the American dream might slip away.

It is true that people should know that if it sounds to good to be true it probably is, but most of the people we are talking about have not been down the road of buying their own home.  They have no trouble listening to all those who say things like rates will never get this low again, and  when it comes to dealing with a higher interest rates you will have plenty of equity in your home to get another loan. They feel that if they are approved the people who should know if they can afford it or not are saying they can afford their American dream.

When you consider that the mind set of a first time buyer is to fulfill a dream and the mindset of the mortgage lender is to maximize profit – there is no comparison. Lenders say they designed the subprime mortgage to help people who could not afford to buy a house the conventional way.  Some of these people had very risky credit histories. To protect themselves the lenders built in prepayment penalties and balloon payments.  The lenders also knew that the proverbial hook in the sale was that  the buyer would not need any money upfront.

Subprime mortgages made it possible for people to buy a house with no down payment.  Some of these lenders even looked the other way when borrows took out additional loans to make the purchase of a home possible.  When we sold our home in Delaware in 2005 the purchasers, first time home buyers, had at least three loans to cover the purchase and initial set up cost. 

From the time subprime mortgages have been on the market lenders have made billions of dollars from them.  Lenders have packaged and resold their risky loans to hedge funds and other investment firms.  Those firms have made billions of dollars more.  While the companies were making billions of dollars the individual CEO’s, managers and other high ranking people have made millions of dollars for themselves on these loans. 

Countrywide Financial Corporation, one of the financial companies that is now struggling to slay alive because of the subprime problem, shows that in 2006 their CEO Angelo Mozilo made a total $43 million in salary and other compensation.  He is only one of many who have made millions.  Now after billions of dollars have been squeezed from these loans over two dozen companies involved with making sub prime mortgages have gone under.

In the end what we have are people saying the borrowers should have never borrowed the money.  We should not forget that the lenders have used every sales tactic in the world to help make the borrow feel that the risk of the loan could be managed.   We should not forget that when you have a dream and then someone says you can fulfill that dream that it never occurs to you that someone is taking advantage of the situation?  We should not forget that even if they might have some questions, sales people were telling them about the growth of the equity in home and it would help them to refinance.  

My sympathy goes to all of those people who really wanted to get a part of the American dream who lost all they had and probably will never get it back because they were used. Their American dream is probably gone forever.  Maybe they should have been a little more leery of the situation, but at least their motives were something that we can all understand.