The Trusted Adviser August 2009 | Volume 2 - Number 6

Update from ATG Administration | What Were We Thinking ?

All the big bankers were recently dragged before the U.S. Senate Banking Committee.

I was stunned when I heard a Senator make this statement: "I am no longer interested in how we got into this mess, I only care how we get out."


Spanish philosopher George Santayana said: "Those who cannot remember history are condemned to repeat it."

The Senator's statement is an example of how political expediency often impedes common sense. Senator, I ask you: How can we fix the current housing crisis without learning what caused it to occur in the first place?

I submit that as we climb from the rubble left in the wake of the housing collapse, we need to take a step back and take a close look at the historical events leading up to this crisis.

When I first came into this business in the early 1980s, a prospective home purchaser needed four things:

  1. Good credit.

  3. Twenty percent down in cash.

  5. Sufficient income to pay the monthly mortgage.

  7. Documentation of that income and assets.

The system worked. A house was a home. Historically, the rate of foreclosures was very low.

Then Wall Street got into the game of securitizing mortgages in the form of mortgage-backed securities. These products were wildly popular. When it became clear that the demand would far exceed supply, Wall Street changed the rules. Just like that. And the table was set for a housing collapse.

To support the insatiable demand, Wall Street began to tell lenders (from whom it was buying these loans) to loosen their rules on granting mortgage loans. To wit:

Income Verification- Wall Street said: "Who cares?" Let borrowers tell you what they make.

Documentation of Existing Assets- Wall Street said: "No problem." No documentation would be required, just an affidavit from the borrower saying they have sufficient assets available.

These no doc or "liars loans" became ubiquitous and with them the nature and quality of real estate transactions underwent a palpable change for the worse.

And the market tanked.

Today, there is considerable political pressure to expand subsidies and incentives to jump start housing. But it's those same permissive practices that facilitated poor lending practices.

Many people do not want to hear it, but here it is: The market will not correct itself, unless and until, we once again embrace the proven fundamentals of requiring a meaningful down payment, good credit, proof of appropriate income and sufficient documentation of assets to support homeownership. It is a system that worked for years and is the only system that will serve us in the future.

Yes, we must support initiatives to stem the foreclosure crisis, particularly to those borrowers who were induced through predatory practices. But let's not create a new wave of at risk borrowers by offering them unsustainable housing debt.

Better days are ahead to be sure, but let's work within a framework that ensures that we are not scratching our heads in the future, wondering: "Didn't we learn anything from the crash of '08?"

Peter J. Birnbaum
ATG President and CEO



THE TRUSTED ADVISER is published by Attorneys’ Title Guaranty Fund, Inc., P.O. Box 9136, Champaign, IL 61826-9136. Inquiries may be made directly to Mary Beth McCarthy, Corporate Communications Manager. ATG®, ATG® plus logo, are marks of Attorneys’ Title Guaranty Fund, Inc. and are registered in the U.S. Patent and Trademark Office. The contents of the The Trusted Adviser © Attorneys' Title Guaranty Fund, Inc.

[Last update: 8-28-09]