Tuesday, April 21

Builders As Lenders

This is an interesting editorial in the New York Times about an unmentioned cause of the housing crisis in California: home builders doubling as lenders.

The industry promotes the practice as a one-stop-shopping convenience that saves time and money. Too many homeowners found it did neither. They were pressured into buying overpriced homes with interest-only loans that they didn’t understand and couldn’t handle. When the bubble burst in Southern California, that was it for their dreams and homes.

Homeowner advocates say that the system is rigged against the consumer, riddled with inherent conflicts of interest. What in-house appraiser is going to scrupulously and honestly assess a home’s value, especially if the market begins to tank? If a lender is connected to a home builder, it is going to try to find any way possible to make that loan, since making that loan means selling that house.

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