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The Blame Game Has Begun

Written By Brian Hicks

Posted May 24, 2007

"Men are only clever at shifting blame from their own shoulders to those of others." Titus Livius, Roman author & historian (59 b.c.–17 a.d.)

As the housing market continues to plummet and the mortgage morass delivers one borrower after another into the pit of foreclosure, the blame game has begun in earnest.

And not surprisingly, the very folks that were supposedly in charge of this Ponzi scheme are busily searching out a plausible scapegoat.

One of them is John M. Robbins. He’s the chairman of Mortgage Bankers Association. To use his own words, he’s "mad as hell."

Speaking before the National Press Club yesterday, Robbins singled out "unethical people" for the industry’s current state. "They’re responsible for this mess," he said.

"For them it’s the number of loans that counts," he continued, "Good loan, bad loan . . . who cares. For them, it’s all about their commission. They, not people with marginal credit, are the ones that need to be stopped."

For Mr. Robbins, though, it was never supposed to end this way. At least that’s what he thought. He was maybe hoping for a gala dinner in his honor instead.

"Frankly, I’d imagined my brief tenure as Chairman of the Mortgage Bankers Association would be celebratory," Robbins told the press. "One part victory lap, one part implementation of initiatives with a lasting impact on the industry I so cherish. Yet I stand before you mad as hell. I have to be angry. It would be too depressing to accept that a very few unethical people can give my profession, and me, a black eye."

But nothing, of course, falls so flat as sanctimonious indignation. Robbins, after all, did nothing to stop it. He silently counted his money just like the rest of them as the industry that he "loves" jumped badly off the tracks.

It is only now, clever man that he is, that he bothers to speak up about it–long after the damage has already been done. Where was he two years ago?

But his lunchtime tirade was not just directed at those "unethical people." He also pointed his smug finger at the nation’s mortgage brokers.

Calling them on the carpet for the mess, he said, "Frankly, it’s too easy to hang a shingle out and call yourself an expert in mortgages. We need licensing of brokers with a threshold that will weed out those unwilling to be responsible."

A national licensing program for brokers, he said, would eliminate the "scam artists."

To which the National Association of Mortgage Brokers (NAMB) naturally replied in kind with some of their own self-righteous finger-pointing.


In an emailed statement the NAMB replied: "It is truly unfortunate [Robbins] has attempted to shift the blame away from Wall Street, federally chartered banks, state chartered lenders and underwriters for the sub-prime situation we find ourselves in today."

NAMB president Harry Dinham added that "most residential loans are quickly sold into the secondary market–in fact most lenders are really just brokering the transaction but are afraid or ashamed to admit it."

As the mortgage industry did its best version of the skirmish between the Hatfields and the McCoys, the opinion of the federal government wasn’t long in coming.

The next day, the Comptroller of the Currency also weighed in on the mess, lumping both grouops together in the belated search for answers. His agency regulates nationally chartered banks.

Speaking before a New York housing group, John C. Dugan claimed the problems were industry-wide, singling out the stated income programs that are now commonly referred to as "liar’s loans."

"Sound underwriting and, for that matter, simple common sense suggests that a mortgage lender would almost always want to verify the income of a riskier sub-prime borrower to make sure that he or she had the means to make the required monthly payments," Dugan said.

"But the norm appears to be the just the opposite," said Dugan. "Nearly 50% of all sub-prime loans last year accepted stated income," meaning that all the parties along the chain of the transaction failed to do their due diligence.

The truth of the matter, of course, is that there is no one scapegoat to pin this entire mess on. Bubbles only exist because of the deeds and actions of many actors–and in this case there many. Wall Street, the lenders, the brokers, the regulators, the appraisers and, yes, even the borrowers are to blame.

Together they created the environment of speculation, easy money and fraud that have been at the heart of every bubble since the Dutch tulip mania of 1634.

But that, as they say, is now so much water under the bridge. All that’s left now is the blame game played by so many clever men (and women).

By the Way: The housing bulls cheered this morning as new home sales surprised the markets to the upside, jumping by 16.2% in April and soundly beating the expectations that they would rise only 0.2%.

But buried beneath that headline-making month-to-month comparison was the real news.

On a year-over-year basis housing’s slide continued. Sales dropped 10.9% vs. April 2006 and the price decline for those sales accelerated. The median price of new homes plummeted 10.9% on a yearly basis as builders continued to slash prices.

So despite those early morning cheers, the cold, hard truth remains: The bottom in housing is still nowhere in sight.

The major indices, though, continue to rally. And it’s not just the big-cap stars of the Dow that are making the headlines. The small-cap-laden Russell 2000 is also trading at all-time highs.

Wishing you happiness, health, and wealth,


Steve Christ, Editor