Lending standards went by the board

Anyone who has ever closed on a home loan is familiar with the dizzying stacks of paper involved, all filled with fancy legal terms and fine print.

The truth is, for people who can’t afford lawyers to do their vetting, buying a home requires a certain amount of trust in real estate professionals. Today, with hundreds of these professionals under investigation, that trust is on shaky ground.

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Allison Wall is executive director of Georgia Watch, a nonprofit consumer watchdog group.

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In recent years, too many lenders stopped seeing mortgages as a product leading to sustainable ownership; instead, mortgages became “paper” sold to Wall Street.

Too many lenders ignored traditional underwriting guidelines, instead pushing new products and dangerous loan features that were known to increase the likelihood of default, such as low teaser rates and high prepayment penalties.

This created a perfect storm for Georgians who were attempting to plant their roots and secure their families’ financial future.

Over the next two years, more than 83,000 homes in the state will be lost to foreclosure. The $1.8 billion decrease in Georgia home values will directly impact the tax base of city and state governments operating under multimillion-dollar deficits.

Lack of financial literacy is clearly part of the problem, and consumer education must be part of the solution.

But there is no escaping the reality that changes in lending behavior are just as important as changes in consumer behavior.

Out with prepayment penalties and kickbacks for brokers who steer borrowers into higher-interest rate loans, even when the borrower could have qualified for a cheaper loan.

Out with business models that depend on unaffordable, triple-digit interest rates and repeat business from borrowers trapped in a cycle of loan flipping, refinancing and destructive debt.

Focusing on irresponsible lending practices doesn’t absolve consumers from responsibility for their behavior — it simply recognizes that blaming financially strapped families is not enough of a solution.