Making sense of the mortgage crisis

The mortgage crisis is impenetrable. One day, people can borrow all the money they want for houses whose values are skyrocketing. The next day, it’s all over. Bad behavior is somehow involved.

This week the Boston Herald’s Laura Crimaldi has a three-part series centered around one player — Dwight Jenkins (photo at right), a former felon from Dorchester who is accused of sweet-talking people into buying houses they couldn’t possibly afford, getting them loans based on false information about their income, and then secretly skimming tens of thousands of dollars off the top of each mortgage.

The series debuted on Sunday and concludes today. The Herald Web site can be pretty difficult to navigate if you’re looking for something other than breaking news, so here you go: part one, part two and part three. You should find most of the sidebars here.

When you read some of the details, you’ll be appalled that anyone could be as naive as Jenkins’ alleged victims. Then you realize that, for the most part, these are people with no financial savvy whatsoever, being told that they can get rich if they’ll just sign on the dotted line.

One alleged victim now suing Jenkins, a former Marine named Robert Smith, is described as “suffer[ing] from schizophrenia, post-traumatic stress disorder, depression, a learning disability and mild retardation, [and] was told he could turn a profit even though he didn’t have money to invest or experience in real estate.”

Here’s another eye-opening excerpt:

Much of the business was conducted on street corners or at a Dunkin’ Donuts on Dorchester Avenue, according to plaintiffs suing Jenkins. He did not have business cards, plaintiffs say, and used multiple cell phone numbers, which were sporadically turned off….

“I didn’t really look at the mortgage application,” said Daniel Montrond, now 27, of Dorchester, a State Street fund accountant, who purchased 36 Milton Ave. in Dorchester for $487,500 on Aug. 13, 2004. “He said: ‘Don’t worry about nothing. Just sign and I’ll take care of everything.’ I was like, alright. Cool.”

Not cool at all, as it turns out. And good on Crimaldi and the Herald for bringing this to light.

8 thoughts on “Making sense of the mortgage crisis

  1. wellbasically

    This kind of article is generally misleading. Yes some lenders were evil, and some borrowers were stupid or greedy. But that can’t explain why this crisis happened overall. Most borrowers at this marginal level will be living from paycheck to paycheck. If the paychecks kept coming, all these people would have been fine. 60% of subprime foreclosures were due to loss of jobs, only 2% to ARM rate resets:”In August, 2007, I wrote that this Fed policy caused the sub-prime mortgage crisis by intentionally destroying jobs held by people who live in homes financed by sub-prime mortgages. These are precisely the people whose employment exists at the margins of the economy. Raise credit costs to slow production, and theirs are the jobs that get cut.”http://www.realclearmarkets.com/articles/2008/01/double_trouble_for_economy_mar.htmlThe Herald story is the spearhead of the Republican response to the Dems giving away the store. The Republicans will say that the borrowers were stupid and shouldn’t be bailed out.

  2. Anonymous

    How much sympathy can one have for a “State Street fund accountant” who gets taken in by such an obvious con artist?”He said: ‘Don’t worry about nothing. Just sign and I’ll take care of everything.’ I was like, alright. Cool.”It’s time likes this when I am grateful I am a poor scrivener than a plutocrat with great gobs of money to entrust to State Street financial geniuses such as Daniel Montrond.Bob in Peabody

  3. Anonymous

    Try not to push your lowbrow assumptions too hard when comnmenting anonymously. Montrond was 23 when he entered into the deals four years ago, simple math tells us. a state st. fund ‘accountant’ is an entry level job of little weight. everyone is a genius in the mirror. in any event, the herald makes clear that the blame goes up and down the ladder.

  4. mike from norwell

    Good article, but the whole truth on what’s unfolding can also be attributed to the Bankruptcy bill back in ’05 and to the debt relief afforded in 2007 to those w/ debt foregiveness.Larger truth is the credit card companies pushed hard for more stringent requirements for credit card relief; this is biting them in the butt right now. Further, let’s say you get foreclosed w/ a written off mortgage. In the past, you’d actually owe taxes on the foregone debt. Not now under recent tax law changes.So say you’re someone who bought a house in ’05 with little or nothing down. Times are now tough, you can’t let the credit cards go under new bankruptcy bill, and you owe more than you can get for the house. You now face no tax consequences by defaulting: ergo, see ya later, here’s the keys mister citimortgage.

  5. mike_b1

    So why doesn’t the Federal Govt simply jump directly into the mortgage business. Instead of loaning money at sweetheart rates to banks, who in turn mark it up before passing it on to mortgagees, loan it directly to us working stiffs at the 2% or so rates. Over the course of a 30-year mortgage, that could put hundreds of thousands of dollars back into homeowners’ pockets.

  6. Will Seberger

    @mike_b1The Fed won’t loan directly to schlubs like us for many reasons; several of which are:1) The Federal banking system, by its nature, has to be more risk-averse than private banks. Banks, in general, don’t want to own homes, and the Fed is even less interested. The Fed knows that while banks nearly always pay back their debts, individual human debtors miss payments or skip out altogether.2) By using ‘middle-men,’ the Federal Reserve creates more value for each dollar (in effect, by increasing the number of hands is passes through).3) How secure would anyone feel if the mortgage lien on his house was held by Uncle Sam? I’m not sure if there would be many takers.4) The government simply does not have enough manpower to handle

  7. Richard

    Great post,A mortgage is a sum of money borrowed from a bank, building society or other lenders in order to buy a property. The mortgage is then repaid over time, together with added interest. There are many different types of home loans – including fixed, discounted and even offset mortgages – which is why an apparently cheap mortgage deal may not always be best for your needs. 🙂 LiveMortgageFree

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