Saturday, May 26, 2007

Liars' Loans

After reading this AP article on some of the victims of the subprime loan industry's poor judgment, I've about concluded that, of all the different volunteer opportunities I'm considering doing in retirement, the single most socially useful thing I can do is teach basic financial literacy through Operation Hope. The people who were suckered into these loans did things I've known were stupid since I was about fourteen - like, signing blank loan applications and returning them to the mortgage broker. Some of the people interviewed for the article didn't see the applications again until after they had signed up for loans - at which time they discovered they were credited on the loan applications with income they didn't have, jobs they didn't have, and assets they didn't have. These people have now lost what little they did have, and ruined what credit they had, to boot.



[Ed. note:] Checking back on this post 10 years later, I find that the link to an AP article in the first paragraph is no longer valid.  This 2007 article in the Washington Post covers the same incident:  Neighborhood Swayed by 'Liar's Loans'

The other characteristic of the group covered in the article that left a very nasty taste in my mouth was the fact that the loan brokers who screwed over this particular group of people, mostly low-income women in Boston, operated out of the basement of the Victory Chapel Church. I don't recall the article noting that they made any particular point about being associated with the church; but I'm quite sure that the people in the neighborhood assumed that, if the church rented the basement to them, they must be OK.

Speaking of basic financial literacy, let me remind us all about the word "assume" - it's the word that "makes an ass out of u and me".

The Victory Chapel Church isn't the first religious institution that has been used as the operating base for a scam artist, by any means. In the early eighties, a firm called Lendvest operated out of Napa, California (my home town), and eventually became the center of a massive scandal surrounding bankruptcies and unsecured loans, as well as drug trafficking and at least one suspected murder. All this data is from a very brief Google search, I haven't researched it in detail, and I wasn't living in Napa at the time. However, some of the neighbors I grew up with in Napa lost a large portion of their life savings in the Lendvest mess, and my recollection is that they bought into it because their contact at Lendvest was a member of their church and a "good man." Of course, they also bought into it because it was promising ridiculously high rates of return.

Speaking of basic financial literacy again, they forgot the basic TANSTAAFL principle: There Ain't No Such Thing As A Free Lunch.

To put it another way, the world is not full of people standing around waiting to give you money out of the goodness of their hearts. If it looks too good to be true, you have to assume it is too good to be true. The people pushing the loans discussed in the AP article were falsifying loan documents in order to make big transaction fees on high interest subprime mortgages; the fact that the borrowers were going to lose their shirts in about 18 months when the loan rates adjusted was irrelevant to them. Frankly, I hope they all go to jail.

4 comments:

  1. Boggart6:52 PM

    Met some folks in Alaska, many years ago. They were a young couple with their first child, a few months old baby. He had a seasonal job with the forest service and really hoped it would turn into a year round position. I don’t remember what she did, but she did work outside the home. Anyway, there was a nice Christian couple at their church, [Is the hair on the back of your neck standing up yet?], who were going to retire to Florida. The nice Christian retirees sold the young couple the house. They even helped arrange the loan. The loan payments didn’t leave them a great deal each month, but they both came from frugal backgrounds.

    At the time I met them, summer was becoming a memory, and winter was sidling on stage. The downstairs toilet backed up. The young couple called in a plumber, who found out the septic tank was made of wood. Now, their sewer system should have been connected to the city system, but for some reason it wasn’t. Mind, wooden septic tanks were not code either. Their options were to pay to get hooked up to the city system or pay to get a proper tank shipped in and put in place. The fine for being out of code happened regardless.

    They did try to get in contact with the good Christian retirees, who could have admitted capability and saved the couple the fine, at least. Of course, there were no replies to their letters. What got me, was the couple’s positive attitude that the good Christian couple must not have known, because [Good old circular reasoning here.], they were a good Christian couple from their church.

    Outside of St. Francis and Mother Teresa, I sometimes think religion is the perfect front for chicanery. I’d rather do business with a lawyer.

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  2. Yes, the hair on the back of my neck is standing up. A classic example of the genre. And if you're dealing with the good Christian couple from the church, you'd better have a lawyer along...

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  3. Anonymous2:50 AM

    I actually lived in Napa at the time and was going to Napa Valley Christian School. The only reason I'm familiar with the Lendvest scandal is, because a friend of mine in my class whom I had spent the night in his house, his father was one of the people who were arrested in the whole ordeal. I always wondered why the school wasn't looked in to more or at all. I mean after his son graduated in 1988 the school closed its doors. I know his father was a main contributor to the school. I personally witnessed the "special" treatment given to him from teachers.

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  4. Secured loans are difficult to find out nowadays. And maximum loans have high interest rate so borrower becomes confused whether they pay the main figure of loaned money or the interest. So when you ask for your church loan I will suggest a church loan provided by the lender company as it claims the lowest interest rate with 100% security.

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