The housing slump is all the fault of “unscrupulous” lenders and brokers, while defaulted home borrowers were just “unsuspecting” victims – according to the September 10 “World News with Charles Gibson.”
“[R]ecord numbers of housing foreclosures have economists worried that mortgage problems could lead to a recession,” Gibson said. “The foreclosures have put a spotlight on the practices of lenders and brokers who are in hundreds of thousand of cases, putting people in homes they can't afford.”
As the [1]word “recession” is cropping up more and more in the media, more stories are reporting extreme cases as typical of the housing crunch.
Back in June, [2]ABC News posted a Web site seeking mortgage hardship stories explicitly for use in their news reports.
“Did you stretch to buy a home in the past few years – thanks to low interest rates, and good deals on loans – and you now find yourself falling behind in the monthly payments?” the site asks. “Did you get a teaser loan or an adjustable rate loan and as the payments have increased, you find it harder to pay the bill?”
One way or another, ABC found some people in strange circumstances.
“Donna Pearce is already [3]four months behind on her high-interest loans from New Century Financial,” ABC correspondent Betsy Stark said. “She says New Century, now bankrupt, got her into the loans by lying about her income.”
New Century Financial [4]filed for Chapter 11 bankruptcy in April 2007 because of its lending practices. In other words, the company has been punished by the marketplace. But there was lag time between Pearce agreeing to her home loan and when she realized she could no longer to afford to make her payments.
“After all of this blew up in my face I realized that they falsified my income,” Pearce said. “It stated I made way more than I actually make.”
The income reported on her mortgage application was $5,500/month. Pearce, a nanny, makes only $2,100. The ABC report placed the blame on solely “unscrupulous lenders” and none of the blame on Pearce – for trying to get a mortgage on that salary.
Liberal Connecticut Attorney General Richard Blumenthal (ranked [5]the worst attorney general by the Competitive Enterprise Institute) was also on hand, asked by Stark if it was fair to say that “a disturbing number of home buyers were victims of fraud.”
“No question that these practices were fraud,” Blumenthal said.
While some lenders have misled consumers, Stark’s story made it seem as though many lenders were unscrupulous and perhaps even more government regulation was needed.
Stark found another home buyer who had gotten in over her head. Abigail Balderama, a California homeowner who lives on a fixed income and cares for her disabled husband, bought a home she is struggling to make payments on.
“We thought we were getting a good deal,” said Balderama.
The ABC report showed a letter where Balderama was offered a fixed rate of a little more than 1 percent for five years, but the interest rate increased to 7.8 percent after just one month. But, even though this anomaly could be handled in a civil court, the Stark report suggested such practices were rampant throughout the “loosely regulated mortgage industry.”
With extreme examples, ABC and other networks have downplayed the bad judgment exercised by borrowers who got in over their heads. Reports also have downplayed the fact that some of the lenders who made the ill-advised loans are victims of the market and are no longer in business. [6]CNN, [7]CBS and [8]NBC have all given these types of one-sided reports throughout the housing downturn.