The bank doesn’t have a fiduciary duty to mortgage customers.
If someone wants someone responsible for looking after money and large purchases, they need a fiduciary financial advisor, not their bank.
The fact that people think the bank is supposed to look after money is part of the problem. The bank is just a vault. Not only are they not responsible for helping someone pick a mortgage and house, they aren’t even competent to do so.
I can’t imagine some retail bank even employing people who could competently assess individual debt/income ratios.
The training is that individuals should have financial literacy enough to know what banks do and don’t do well. And to recognize cross-marketing.
I knew tons of people who made dumb decisions in the 00s and bought way too much house. The bank letting them was part of the problem. But people being stupid was a big part too. I knew families making $50k/year buying $400k houses and refinancing every six months for cash out to pay the mortgage. The bank shouldn’t have done that. But people were really stupid to do this once much less multiple times.
But some banks thought they could lower their underwriting standards and get away with it because they could shift the risk to larger financial entities by selling the mortgages. And a lot of non-banks got in on the mortgage underwriting game for the same reason.
And bank customers liked it. Who doesn't like to be told that you're in better financial shape than you thought? That should be good news.
My point above was not to defend what banks did, but to point out that, even though banks were in the legal right to lower their underwriting standards, it did not work out well for them or their customers (or anyone else, really). And a lot of the downside came later, in the form of bad reputations, burdensome regulations, etc.
Maybe there were lots of hapless old people who were misled by some bank they mistakenly trusted for years.
I don’t think so, the many examples I personally knew from that period were getting loans from specialized banks that set up mortgage shops, like Washington Mutual.
The book (and movie) The Big Short digs into this how regular people were overextending.
To clarify, the banks were bad actors by offering and participating. But reasonable people were avoiding the situation until the whole system tipped over. Someone borrowing at 40% debt to income or higher should never have done that, even if they trusted their local banker who was saying it was fine. Finance requires personal responsibility and people need education to help make these decisions (and they shouldn’t get this help from someone with a vested adversarial financial interest).
They would have terrible sales numbers and get fired in the first month. Wells Fargo's training was that the more financial instruments a customer had with the bank the better.
What a dismissive, awful, terrible way to phrase this.
Having parents that were nearly the victims of one of those upside down mortgages, it's not that simple. They didn't ask for a 400k mortgage. They asked for a home they could afford. When the bank, that they have trusted their entire life, says, 'you can afford this much per month', they had no reason to question that.
They're unsophisticated people, who trusted the system not to fuck them. And that's precisely what it tried to do.
While I get that people need to take control of their own money, when the people responsible for looking after your money, the actual, literal bank tells you you're good, why wouldn't you believe them?