House Of Cards: The Mortgage Mess

By: CBSNews

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"But you knew this was a big decision, right? You were borrowing hundreds of thousands of dollars," Kroft remarks.

"I didn't really look at it like that," Fontenot says.

"How did you look at it?" Kroft asks.

"I looked at it as far as my family. I can get my family off of this block," he replies.

"And that we could pay the payments that she said that we could pay," Fontenot's wife Kim adds. "But after it was all said and done, and the paperwork was drawn up, it was something different."

But Matt and Stephanie Valdez say they knew exactly what they were doing when they bought a small two-bedroom for $355,000. They could afford the initial payments and planned to refinance the mortgage before the interest rate jumped to 11 percent. But they couldn't do it because the value of the house had fallen below what they owed on the mortgage. They say they can afford the higher payments, but see no point in making them.

"You're saying, essentially, that you're going to stop making payments on it? You're just gonna let it go into foreclosure?" Kroft asks.

"You know, that's the only advice we've gotten so far is walk away from the home. We don't want to do that to our credit. Why can't our mortgage company work with us?" Stephanie Valdez says.

There is a certain cold logic to just walking away.

Kevin Moran, the real estate agent who gave Kroft the tour of foreclosed houses in the Weston Ranch subdivision, says it is happening every day. They were never really invested. Most of the people who lost the houses didn't lose any money because they never put any money down. Though their credit is damaged, and they could face legal action in some circumstances, they got to live in a new house for a couple of years, and some of them even managed to get some money with home equity loans or by refinancing.

"Nobody seems to be saying, 'Look, I made a contract with you. I borrowed money from you. I'm gonna do everything I can to pay off that obligation.' People just seem to be saying, 'Look, take the house. Good-bye. I'm leaving,'" Kroft says. "There was a time, I think, when people felt really bad about not paying off a debt."

"Yeah, I think in those days, loans were made by your local banker or building and loan associations or savings and loan. They were guys you saw in the grocery store. They were on the little league team with you, the PTA, the school. And I think as mortgages became securitized and Wall Street became involved, they became very transactional and there was no relationship built with the borrower and the lender. And I think that makes it easier for someone to see it as an anonymous party at the other end of the transaction and just walk away from it," Moran says.

"Just a business decision," Kroft says.

"A business decision that has to be made," Moran agrees.

"It turns out that if you give people free money, they will take it without really worrying too much about giving it back. Because after all, it was free," Jim Grant says.

Asked if it's a case of greed, Grant says, "Greed, sure. Greed on both sides of the table."

"What do you mean?" Kroft asks.

"Lenders and borrowers," Grant says. "Everyone was gaming the system."

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by kldupont May 28, 2008 2:11 PM EDT: How appropriate this was aired the same night as the Milennials story. Both of these stories wreak of how irresponsible the majority of Americans are to work and living. The majority of fault for this mortgage crisis is people want more house they can afford. Mortgage companies and banks have always told people they can afford more than they can. People need to wake up and think for themselves. It is no one''s fault when you sign mortgage documents except yourself. People always want to blame someone else for their ignorance and not have any consequences. I am glad when you showed the Fontenot family they were questioned about how they could afford the home. And also didn''t they realize what they were doing. The answer just thinking of my family isn''t good enough. That is not a mature responsible statement. Each person needs to assess what they have and live within their means. Now with this recession building hopefully some people will wake up to that fact. Until we take personal responsibility for our own actions this country will continue to crumble around us. Too many people want too much for nothing. And it is getting burdensome to all the hard working people who do live within their means.; Reply to this comment


by tootall10142 May 28, 2008 12:30 PM EDT: Ahh the american dream two car a new house four credit cards 2.3 children we got it all honey!living beyond our means is great.i love my new hemi!that bass boat will really fly!daddy what is wal-mart?look to yourleft the jones,s are in line beside you.the smiths well ,they are home building on thier new jim walter home.that is paid forand the roof repels water.; Reply to this comment


by mortgageexp May 27, 2008 12:31 AM EDT: Even after nearly 18 months of reporting on the mortgage crisis you ( CBS News / 60 Minutes ) still haven%u2019t gotten this story right. You haven%u2019t provided an accurate reported on the reason that nearly half to two-thirds of homeowners have gone into foreclosure. I feel your report did an injustice to an entire industry. The truth of the matter is, the mortgage brokering industry and sub-prime loans have been around for nearly 30 years without any major problems until the end of 2006. The mortgage brokerage industry was a direct result of the U.S. Savings and Loan crisis of the 1980s.

Sub-prime loans are not the real culprit in the mortgage meltdown. By the way a sub-prime loan was any loan which was not a conforming (Fannie Mae/ Freddie Mac ) or a government loans ( FHA / VA ) Therefore for example, a doctor with a complex tax return and who may not want to disclose his income may elect to utilize a %u201Csub-prime%u201D mortgage.

In my opinion, your reporting on this crisis can be likened to an oncologist who is more concerned with and focusing on a cancer patient%u2019s hair loss instead of their chemotherapy treatment.

I%u2019ve been helping homeowners, like the folks Mr. Kroft was reporting on keep their homes for the past six months.; Reply to this comment


by ohboy1929 May 26, 2008 9:17 PM EDT: 400 billion dollars. Big deal! If you listen closely you can hear the thundering foot steps of the "Mother of all financial disasters" coming the 600 TRILLION dollar OTC derivative market meltdown.; Reply to this comment


by gtfarrell3 May 26, 2008 8:30 PM EDT: The Credit Crunch
The True Cause

In my best selling book, "the Angry Black Man''s Guide to Success," in chapter eleven, I take a hard look at the credit rating agengies and how a system without transparency really caused the sub-prime mortgage crises that is destroying the financial markets around the world. While the Ferderal Reserve attempts to stop the inevitable, a market crash, they still are treating the symptoms but not the desease.

Many analyst are blaming easy credit but are missing the obvious. The credit rating system, or credit scores as they are more commonly known, are defective, faulty and wrong. The scoring system devised by Fair Issacs in 1961 initial purpose was to serve to speed up the process of approving or denying small consumer credit and store cards. Thus a system devised to approve purchases up to $500.00 is now being used to approve real estate purchases into the millions.

The credt scoring system eliminated the core basics of the three C''s of credit, which include Collateral, Character and Capacity, Collateral or assets did not apply which is why investors could buy multiple homes with no money down as long as thier score was above 700. Character took a flying leap out the window and Capacity to repay was never analyzed. No documentation was required or requested because the credit scoring system was considered infalable.

George Farrell
www.abmgts.blogspot.com; Reply to this comment


by mysticsilks May 26, 2008 7:48 PM EDT: Steve Kroft, you explained in layman''s terms what the heck is really going on with the housing, and banking industry. Seems like 60 Minutes is the only true news broadcast,that is informing the people. The rest of the news simply skims what is , but not the real whys?

I simply remember back in the 1940''s, and 1950''s, a bank or loan company wouldn''t give you a loan for a home unless you could prove financially that you could afford the payments. Period!
Why, did they change a system that worked very well?; Reply to this comment


by seehud1 May 26, 2008 2:57 PM EDT: You left out the most important part of the story. The whole reason that subprime loans were created and who created them.
85% of ALL mortgages made in the US are sold to Fannie Mae. All of these mortgages have to meet Fannie Mae Guidelines. Banks dont make loans without meeting fannie mae guidelines, loan officers dont sell loans that dont meet fannie mae guidelines, WHY? because fannie mae wont buy them. Fannie Mae had to create a product that would yield a higher rate of return on the bond market. When they sold the subprime "paper" on the bond market, they knew exactly what they were selling and insuring because they created the guidelines. When they created the "stated income, no doc" loan, fannie mae knew what kind of borrower they were going to get and yet they continued to buy the loans meeting their own criteria and then bundled and SOLD them as "A" paper. THAT is where the fraud happened and it is appalling that no one in the media seems to get to that part of the story. Please let viewers really understand what happened. The truth is that there is plenty of blame all along the line however the creation of the subprime loan belongs solely to Fannie Mae.
Catherine Reed; Reply to this comment


by nbrdknkldgr May 26, 2008 11:37 AM EDT: Like GW said a couple of years ago, homeownership is at an all time high under his administration. What he didn''t say was that you won''t get to keep it!; Reply to this comment


by sperrystar May 26, 2008 2:10 AM EDT: For many years lenders required 20% down and proof of ability to pay. These basic requirements protected lenders as well as borrowers. You might have asked who is responsible for removing these safe-guards?

The rush to deregulate the financial industry has gone too far. I wonder if the genie be put back in the bottle.; Reply to this comment


by candacehw-2009 May 26, 2008 1:49 AM EDT: A LOT OF EMPHASIS HAS BEEN FOCUSED ON THE BORROWERS WHO TOOK OUT SUB-PRIME LOANS RATHER THAN THE "PROFESSIONALS" WHO CREATED THESE PRODUCTS AND ALLOWED THEIR CLIENTS TO TAKE THEM OUT. FIDUCIARY DUTY IS THE PRIMARY ETHICAL DUTY OF SUCH PROFESSIONALS AND IT WAS UNIFORMLY VIOLATED.THEY WELL KNEW THAT THEY WERE INDUCTING CONSUMERS INTO DAMAGING, IMPROPER BEHAVIOR. INSTEAD OF PROTECTING CLIENTS THEY SACRIFICED THEM FOR PERSONAL GAIN. ANALYZING WHAT A CLIENT CAN AFFORD IS VERY EASY. MAKING A LIVING IS MUCH MORE DIFFICULT. THE TEMPTATION WAS, IN THIS CASE, OVERWHELMING.; Reply to this comment