Basic banking fees: are Canadian banks competitive when compared with Europe, the U.S.?

Canada’s banking system received great accolades on its strength and stability during the financial meltdown of 2008. Unlike many of their G7 counterparts, Canada’s major banks never requested nor received a taxpayer-funded bailout from any level of government.

With that said, it’s a well-known fact that Canada’s leading financial institutions aren’t exactly the most competitive when it comes to pricing their products and services. From mortgage rates to GICs to everyday banking accounts, Canada’s banking system can hardly be described as competitive. After all, when merely half a dozen institutions control a vast portion of the personal banking market in Canada, there aren’t many incentives for these institutions to compete for value.

In this small study, I will examine the fees charged by other major banks around the world for a regular bank account (chequing account) so that we can compare those fees with the ones charged by Canadian institutions for the same type of account. I will keep the analysis limited to institutions in fellow G7 countries.

I’d like to emphasize that I have no intention of performing a broad analysis of a variety of products and services offered by financial institutions. The main focus of this analysis is simply looking at basic banking fees and determining whether the average Canadian is getting the best value for their hard earned dollar.

I will examine a few leading banking institutions in four countries: Britain, France, Germany, and the U.S. I have chosen to examine only major institutions, 2 or 3 at most in each country. It would obviously be too tedious to look at what the smaller institutions offer. I feel confident, however, that my analysis at least shed some light on the fees charged by institutions that are comparable in size to our own leading banks.

Britain:

Banks examined: Barclays, HSBC, Royal Bank of Scotland

Monthly fee for a basic chequing account:

Barclays: None

HSBC: None

RBS: None

All three banks offer a chequing account for individuals as well as businesses at no charge for a basic account. There is no limit on the number of domestic debit transactions that can be performed over a given period and there is no minimum balance requirement to avoid any fees. Mobile, online, and telephone banking are included with the service. Bill payments and transfers to other accounts with the same institution are also included. The only time a fee is charged is when the client signs up for an account that has premium features such as gadget insurance, overdraft protection to a certain limit at preferred rates, and premium telephone support.

Several of the institutions I examined offer a high-interest savings account with the privilege of a chequing account at no cost. Not only does your money earn a preferred rate of interest but the account can be used for everyday banking at no charge. In Canada, most of the leading financial institutions I examined don’t offer this type of flexibility.

Conclusion: The big banks in Britain don’t charge their clients a dime to access their money. Instead, they make a profit through other avenues such as the cost of borrowing on overdraft protection (which apparently has more prevalent use in Europe) and from individuals who sign up to premium banking features. Clients who set up a basic chequing account need not worry about monthly fee or limits on their domestic transactions.

France

Banks examined: BNP Paribas, Societe Generale

Monthly fee for a basic chequing account:

BNP Paribas: Basic account starts at 2.20 euros/month, an account with more premium features start at 7.09 euros/month

Societe Generale: JAZZ Carte Bleue (modest choice of features) costs 7.60 euros/month

The banks in France offer a mixed variety of plans. There are many small “community banks” in France that don’t charge at all for a basic account. With respect to banks that charge a flat monthly fee (the larger financial institutions), the amount is nominal and includes no major restrictions such as limits on the amount of debit transactions by month. With certain institutions, the youth and young individuals save an additional amount on premium banking features which includes services such as free bank cheques (money orders) to basic life insurance.

One interesting thing to note about French banks is that the debit card can be in the form of a conventional bank card or a VISA. The VISA card is a slightly more expensive (as little as an additional 1 Euro per month) and provides the client with the flexibility to pay merchants that don’t accept debit cards with a VISA that’s linked to a bank account as opposed to a credit facility. There is also an option where the VISA portion of the card can be linked to a regular credit account. The credit facility is subject to approval by the issuing bank.

Conclusion: Some of the leading banking institutions in France charge a flat monthly fee. This model is markedly different than the one used in the Britain where most of the big banks don’t charge the client a monthly fee for a basic chequing account. The fees are nominal and the accounts are more flexible with limitations on basic every day banking being a non-issue.

In contrast, several Canadian institutions, while charging a monthly fee, place a series of limitations on the account (i.e. no free cheques, no free money orders, only a small number of debit transactions per period at no additional cost, etc.) unless the client signs up to more expensive accounts where some of those limits are waived. The difference in the annual fee between a moderate use account and an unlimited account can range between $50 and $80 depending on the institution. That’s the “premium” clients pay to access their money more often on the bank’s very own network. Accessing funds at ATMs that are not part of the institution’s network can become cost prohibitive in the long run.

Germany

Banks examined: Deutsche Bank, Commerzbank, Postbank

Monthly fee for a basic chequing account:

Deutsche Bank:  AktivKonto (Active Chequing) account fee is 4.49 Euros/month; BestKonto is 9.99 Euros/month and includes a debit/VISA card. Clients that have family plans save 50% from the monthly plan cost. Both plans include unlimited usage with no balance minimums. All plans include access to the institution’s online portal that offers a myriad of services such as bill payments and transferring funds (to savings or investment accounts).

Commerzbank: A basic account is free of charge as long as a combination of 1,200 Euros is credited per month. It includes a debit card with no limit on the number of transactions as well as access to the online portal that offers various services such as bill payments, account transfers, etc. A premium account with certain credit privileges is free up to age 25 after which the client may upgrade to an AktivKonto at a nominal flat fee of 5.90 Euros/month all-inclusive.

Postbank: A basic account is free of charge for students and clients up to 22 years of age. A regular checking account starts at 5.90 Euros/month if the client doesn’t post combined monthly credits of at least 1,000 Euros. Apparently, this is not a minimum balance requirement but rather the level of deposit activity that must take place to avoid a flat monthly fee.  Note that pay cheques in Europe are paid either bi-weekly or monthly so for the average person this does not necessarily represent a limitation.

Conclusion: Germany’s banking system is similar to that of France. The system is comprised of the major banks, the largest of which include Deutsche Bank, Commerzbank, Dresdnerbank, and Postbank as well as smaller community banks and credit unions. Germans enjoy a myriad of options when it comes to personal banking, including free chequing accounts, no limits on the number of transactions even for a small monthly fee, and the integration of debit and credit cards into a consolidated account. Moreover, most of Germany’s banks have a network agreement where a client of one bank can use another bank’s ATM to withdraw funds without incurring any surcharges.

United States

Banks examined:  Bank of America, Chase, Wells Fargo

Monthly fee for a basic chequing account:

Bank of America: Zero (if opened online, New York region)

Chase: Zero (a minimum of 5 debit transactions per month must be posted to avoid charges. Otherwise, a fee of $6 per month would apply)

Wells Fargo: The basic and mid-level chequing accounts are free if you either keep a minimum balance (with some accounts commending a hefty $10,000) or commit to a direct deposit of $250 per month. However, even if the client does have to pay a monthly fee, the amount is more reasonable when compared to similar options in Canada considering the value they provide: $5 for a very basic account or $10 for a premium account with both accounts having no limit on the number of debit transactions.

Conclusion: The U.S. is a huge market for personal banking. While there are several big players that provide service nationwide, there are thousands of smaller regional banks who compete directly with the larger institutions. Such a level of competition means that clients have access to a wide array of products and services at various price levels.

Two of the three major banks I analyzed offer a free basic checking account with no limit on the number of debit transactions. Interestingly enough, Canadian banks charge the client a fee for basic and moderate use accounts and restrict the usage on the account – for example, pay $5 a month and get 10 or 15 debit transactions. The usage model is exactly the opposite in the U.S.: basic and moderate use chequing accounts are not only free, but at least two of the banks I analyzed charge the client a fee only if the client doesn’t use the account enough. In other words, in Canada you’re penalized for using your bank account too often whereas in the U.S., at least with some institutions, you’re penalized if you don’t use the account enough times (as little as 5 times per month). Remarkable! If you regularly use your bank account, irrespective of where you reside, which model makes more sense to you?

Chequing Accounts fees in Canada

I will refrain from posting any direct information on the fees charged by Canada’s banks as you can access the fee schedule online by visiting the major banks’ websites. While there are some institutions that provide better value than competing institutions even when charging a monthly fee, it is clear that the flexibility to access one’s very own money is noticeably absent. This holds true even to individuals who make use of online and mobile tools and rarely visit their branch. With the exception of President’s Choice Financial and perhaps a handful of small credit unions, there is no free lunch when it comes to accessing your money.

Canada’s personal banking system is a dinosaur. Compared to other G7 nations, Canadians are being overcharged for the type of service and features that people in Britain, France, Germany, and even the U.S. enjoy for free or a lot less than what we pay. With the exception of pricey “unlimited” plans, Canadians are limited by their financial institutions in the number of debit transactions they can perform in a given month. Once the client reaches their limit, the cost of each additional transaction, even if the transaction is conducted on the bank’s own network of ATMs, is outright scandalous considering the actual cost to the bank.

Canadian institutions agree to waive the monthly fee as long as a client keeps a minimum amount of funds in the account at all times. However, unless the client signs up for an unlimited account, they would still incur a fee for each additional debit once the transaction limit is reached. To qualify for a true no-fee, unlimited chequing account, a client must keep several thousand dollars in the account at all times, bearing no interest whatsoever. And even then, surcharges are still applicable such when a client withdraws funds from an ATM that belongs to another institution.

It’s no wonder that while banking institutions around the world were posting heavy losses, Canadian banks were reporting hundreds of millions of dollars in profits. While we can certainly feel comfortable in having a stable banking system, we the clients are at least partially responsible for keeping that very system stable by paying all these fees and service charges to access *our* money.

So what can we learn from the Europeans? For starters, big banks don’t have to charge people to access their own money. This model has been in practice for years in Europe and no bank has ever failed as a result. The popularity of hybrid cards – that is, a card that’s part debit card and part credit card – is prevalent in countries like France and Germany.

Some institutions in Europe charge a monthly banking fee while others don’t. The fees are lower than those charged by banks in Canada. There is no limit on the number of debit transactions on any of the accounts I looked at in Britain, France, Germany, or the U.S. There is no minimum balance requirement to waive any monthly fees. Instead, European banks want a minimum amount of activity posted on the account to have certain fees waived. Youth and young individuals (up to ages ranging from 29 to 35) often get additional savings if they choose premium chequing features over a basic account. Virtually all banking institutions I looked at have premium bank accounts that offer more perks but for a nominal monthly fee, something that’s noticeably absent in Canada. In countries like Germany, ATM surcharges are minimized due to the fact that banks have a network sharing agreement with one another.

Canada’s leading financial institutions can easily implement changes that would make the personal banking segment more flexible and competitive to their clients. The primary obstacle to providing lower fees and more flexibility to clients stems from the fact that a very small number of institutions control a significant portion of Canada’s personal banking market. These institutions collude with one another to the extent where the present fee model for basic banking is virtually the same with every institution.

The only way Canadians would ever get better value is to demand it from the financial institution they work with. If you have multiple services with your financial institution, never hesitate to use that as leverage to get lowest possible fees. Canada’s banks continuously emphasize how important it is for clients to establish a “relationship” with their bank. Comparing the fees and flexibility that other banks in the G7 offer their clients, I can only conclude that our banks’ idea of a “relationship” is one that’s purely a one-way street.

Disclaimer: The accounts information in this post was obtained directly from the websites of the institutions discussed above.

Rate quotes – July 20

In light of today’s rate increases, here are the rates we currently offer on our most popular mortgages:

Fixed:

1-year: 2.64%

3-year: 3.49%

5-year: 4.09% (90 days rate hold, 20/20 prepayments, portable & assumable)

5-year special offer: 3.99% is available if you are willing to accept a lower prepayment facility

Adjustable/Variable: (Prime is 2.75%)

3-year: Prime – .70% (2.05%)

5-year: Prime – .65% (2.10%)

Bank of Canada raises its benchmark rate, outlook cautious

The Bank of Canada raised its benchmark rate by an additional .25% earlier today, bringing the rate up to .75%. As a result, financial institutions are expected to adjust their Prime rate very shortly. Individuals who have an adjustable/variable rate mortgage and a personal or home equity line of credit would see their interest rate increase. Today’s increase brings Prime to 2.75%.

It’s interesting to note that while Canada has become the only country in the G7 to raise interest rates, the bigger picture is dependent on factors that we can’t control. While Canada and Asia continue to enjoy strong growth, the U.S. and Europe find themselves in a very different predicament.

Both Europe and the U.S. are plagued by stubbornly high unemployment and massive deficits. Despite continued government stimulus, a $1-trillion bailout fund coordinated with the IMF, and the announcement of deep austerity measures by several European states, the sluggish economies of the U.S. and the E.U. represent a serious threat to the stability of Canada’s economy.

When the Bank of Canada raises its benchmark rate, the Canadian dollar looks more attractive to foreign investors who use it as a hedge. A Canadian dollar that’s on par with the U.S. dollar means that Canadian goods and services are more expensive. This is detrimental to Canadian businesses and manufacturers who’s primary export market is the U.S. and the E.U.  The fact that economic growth in both the U.S. and Europe remains stagnant only exacerbates the problem.

For this reason, Bank of Canada Governor Mark Carney revised this year’s growth forecast to 3.5% from 3.7% and next year’s forecast to 2.9% from 3.1%. The revisions, of course, are based on the status-quo being maintained. One of the main factors to take into account is volatility in the international markets. Should the European sovereign debt crisis take center stage again and the U.S. economy continue to remain weak, Canada’s economy may take a hit even though unemployment on our end is decreasing steadily, we have withdrawn most stimulus measures, and we have a clear goal of tackling our own deficit over the next few years.

Rates schedule part deux

Another quick update on our rates. It seems that lenders are quite reluctant to pass the savings to consumers as far as fixed rates are concerned. While adjustable rates continue to head down, fixed rates remain rather elevated considering that bond yields are down significantly.

While we are seeing indicators suggesting that the U.S. economy is heading into a “double dip” combined with a European sovereign debt crisis that saw the major indexes decline noticeably (S&P500 gave back 14% in May), investors have rushed back into the security of government bonds.

This is arguably good news if you’re conservative with your mortgage and opt for a fixed rate because the more money is flowing into these bonds, the lower the yield and hence fixed rates should in theory come down. But lenders are not passing the savings quickly enough. The question is why? The simple answer is most of the big banks are betting that the Bank of Canada would raise interest rates again this month. Bank of Canada officials will be meeting on July 20 to decide whether an additional rate increase is necessary. When the Bank of Canada raises interest rates, investors demand that government bonds pay a higher yield.

At this point it really is coin toss as to where we’re heading in terms of mortgage rates. Two months ago there was all this talk about mortgage rates increasing and how the days of historically low rates are coming to a close. With that said, for the past month we have seen interest rates head down. With the housing market slowing down, could low mortgage rates resurrect record sales? I’m quite doubtful of that notion but we shall see where things go.

We’re now doing pre-approvals with a bank that never does pre-approvals to anyone else! We’re at the top of the list and we’ve been selected exclusively just so that we can provide our clients with levels of service that are unmatched by anyone else.

Just one quick note: you may see some places advertise a 5-year fixed rate for as low as 3.90%! I strongly advise avoiding these mortgages as they are very restrictive. These mortgages:

• Have a very short rate hold (30 days at the most)
• Require a minimum 15 to 18 years amortization period
  
• Allow very little or no prepayments
• Are not portable or assumable
• Require a bona-fide sale of the property to be paid off and carries an interest rate differential (IRD) that’s tied to Canada Bond rate which can significantly increase the prepayment penalty amount

In other words, if it’s too good to be true there is always a catch. This is why despite being affiliated with this particular lender, I’m not pushing these type of mortgages. Our revised rates schedule is as follows:

Fixed:

1-year: 2.64%

2-year: 3.20%

3-year: 3.49%

4-year: 3.99%

5-year: 4.09% (90 days rate hold, 20/20 prepayments)

Adjustable:

3-year: Prime – .70% (1.80%) (90 days rate hold, 20/20 prepayments)

5-year:  Prime – .65% (1.85%)

Hybrid (5-year)

Fixed portion: 4.09%

Variable portion: Prime – .50% (2.00)

Effective interest rate as of July 8 based on 50/50 split: 3.05%

Cheers!

P.S. Go Holland!!

Rate quotes

Finally have some free time on to work on my blog. To start off the month, here’s a small rate update for our most popular mortgages. As always, interest rates are subject to constant fluctuations and may change at any time.

Fixed Rates:

6 months: 3.85%

1-year: 2.64%

2-year: 3.20%

3-year: 3.49%

5-year: 4.24%

Adjustable:

5-year:  Prime – .65% (1.85%) (full rate hold and prepayment facility, portable & assumable)

Open: Prime + .80% (3.30%)

Hybrid:

5-year fixed portion: 4.25%

Adjustable portion: Prime – .50% (2.00%)

HELOC:

Prime + .60% (3.10%)

Back after a small vacation

So…. Good to be back after taking a small vacation.

The Weekly Report for Friday has been uploaded. Finally!

In this week’s report:

1) Fixed rates have decreased by a very small amount despite the fact that bond yields are noticeably lower — it appears that lenders are quite sleepy when it comes to passing the savings to consumers

2) Canada’s housing market is expected to slow down noticeably over the next 6 months, perhaps changing the equilibirium to a buyer’s market yet again.

3) The Bank of Canada is under no pressure to raise interest rates. Slow economic progress in other parts of the world may keep rates low here for quite some time.

Later this week, a detailed look at TFSA over-contributions.

Revised rates schedule

Here’s our revised rates schedule for our most popular mortgages effective today, June 16. As you can see, there aren’t many changes over the last update. Please note these rates are subject to the applicant meeting the lender’s underwriting criteria. Contact me for rates on commercial and open terms.

All of the mortgage rates quoted below are for full-fledged mortgages, which means full pre-payment facility and rate hold to provide our clients with maximum flexibility. Most of our mortgages are portable and assumable as well.

Fixed:

1-year closed: 2.64%

2-year closed: 3.20%

3-year closed: 3.60%

5-year closed: 4.19% (high ratio only), 4.25% (conventional with full rate hold)

Adjustable: Prime is 2.50%

3-year: prime – .65% (1.85%)

5-year: prime – .60% (1.90%)

Hybrid:

5-year term:

fixed portion: 4.25%

adjustable portion: prime – .50% (2.00%)

HELOC:

Prime + .60% (3.10%)

G20 summit

I have received notice from at least one lender that they would be closed on June 25 due to all the traffic restrictions in place for the G20 summit. While the relevant staff would be equipped with laptops to work from home, it begs the question:

Who the hell is paying for the disruption this summit is causing businesses?

As if this whole circus costing the Canadian taxpayer billions of dollars in security costs alone isn’t enough, now businesses have to adapt for a brief period to accommodate an all expenses paid getaway for about a dozen world leaders. We know already that these summits produce little in terms of substance.  While there are several key issues up for discussion at the coming summit, we know that the brief meeting between heads of state would not really yield any meaningful result. Instead, the series of meetings are scheduled to pave the way for work to be done after the summit. So if all the work on the agendas would be done after the summit, why are we closing down an entire city? Even if it’s only for a few days, the economic consequences are simply not justified.

Just my two cents.

Taking the marketing hype out of switches — we don’t charge fees, either!

You may have noticed that several major banks have launched a large marketing campaign about switching the mortgage to them at no charge. One has to wonder why Mortgage Brokers aren’t advertising this advantage more broadly considering that we do no-fee switches with Canada’s biggest lenders.

Switches (also known as transfers) simply involves moving the mortgage from one institution and taking it to another institution. The financial institution that currently holds the mortgage would be paid by the new lender. The new lender would then go on title and payments would commence based on the new mortgage terms. For most people and properties, it’s a fairly straight forward process that costs the client nothing. Given the competition in the mortgage market, many lenders have committed to absorbing any legal and administrative fees to make the process as easy as possible on the client.

When you purchase a property, there are many costs that must be taken into consideration before closing. In a purchase transaction, the majority of the closing costs are not paid by the lender (technically, none of the closing costs are covered by the lender but there are some who may reimburse the appraisal, for example). With a switch, however, the process is much more streamlined. The cost to the lender to process the mortgage is much lower, which is why the client won’t have to pay any fees to move the mortgage elsewhere.

If you’re switching your mortgage through a Mortgage Broker, you don’t have to worry about paying a fee for any services rendered — the lender would absorb the brokerage fee for the transaction.* In addition to processing all the paperwork and working directly with the underwriter to ensure that your application is approved quickly (we aim for under 24 hours turnaround) and funded successfully, we will capitalize on our relationship with the lenders we work with on a regular basis to provide you with the lowest rate on the market.

So next time you see a bank offering you to switch your mortgage for free, take the time to understand the mortgage options the institution is offering and look beyond the no-fee switch. When your mortgage term is about to mature, it’s actually a good time to examine whether your mortgage is running on a parallel track with your financial plan.

Two quick notes as this question would undoubtedly come up during the conversation:

• The no-fee option applies only when it’s a straight switch. In other words, no new money is added to the mortgage.
• The new lender would not pay any existing pre-payment charges on your behalf. If you’re currently facing a pre-payment penalty with the current lender, the new lender would not cover that penalty.

The latter is sometimes a point of confusion as homeowners think that the new lender would pay for all the fees associated with the previous mortgage upon transfer. It’s important for homeowners to understand that pre-payment penalties aren’t covered by any lender in a mortgage transaction and remain solely the homeowner’s responsibility. Legal fees and appraisals would be covered by lenders that offer a no-fee switch.

*On approved credit and subject to the client and property meeting the lender’s underwriting guidelines. No-fee switches denotes a straight switch where no additional funds are added to the mortgage.

U.S. lender fined for predatory tactics against desperate borrowers

The New York Times released an interesting article today about how some lenders in the U.S. may now face the wrath of FTC. Countrywide Financial was fined $108 million last week for some of the tactics they have engaged in getting people to repay the debt or vacate the property.

Countrywide, now a unit of Bank of America, was once led by Angelo Mozilo and was the nation’s largest mortgage lender in the glorious, pre-crisis days of the housing boom. But it was also a predatory institution, and the F.T.C., citing Countrywide’s serial abuse of troubled borrowers, extracted a $108 million fine from Bank of America last week.

That money will go back to some 200,000 customers whom Countrywide forced to pay outsized fees for foreclosure services.

We often think of the sub-prime mortgage crisis in the U.S. as a result of irresponsible people taking out mortgage loans fully knowing they could not realistically afford the payments. But what about the lenders who actually gave them that money based on severely inflated home prices? Should they not be held accountable?

While many sub-prime lenders in the U.S. have gone out of business, some of the largest lenders actually survived to see another day. One such lender is Countrywide Financial. At the peak of the real estate bubble, it was the biggest mortgage lender in the U.S. If you watched American channels such as CNN, Fox News, A&E, and a handful of others during the period leading up to the worst financial crisis since the Great Depression, you’ll probably remember seeing ads run by companies like Countrywide, New Century, Washington Mutual, and Citi Financial promoting the American dream of home ownership.

Unbeknownst to many Canadians, these were lenders that specialized in so-called ninja loans (no income, no job or assets) that catered specifically to borrowers who were deemed high risk — that is, those with poor credit history, have little or no down payment, and more often than not little or no verifiable income. These people were targeted by both originators and lenders who were betting that housing prices would continue to spiral upwards endlessly. The objective was to exploit a sizzling real estate market in states like California, Florida, and Nevada (although the trend was pretty much nationwide) to make outrageous amounts of money. To make it happen, lenders and their Wall Street counterparts who would ultimately re-package and sell these mortgage bonds to investors needed to hitch a ride on the backs of those least educated, who also happened to be most vulnerable.

The proposition that these lenders made to borrowers was quite simple: you don’t need to have a down payment. You don’t need a good credit score. You don’t even need to show proof that you have income coming to service the debt. Take the money and here are your keys. For the first two years you’ll enjoy an incredibly low interest rate. After two years, the interest rate would increase to reflect that fact that you’re a higher risk. But don’t worry — as long as you make payments on time during the teaser rate period, we’ll just refinance your loan two years from now to a lower rate. It seemed like the perfect win-win situation.

One thing these lenders casually forgot to take into account is the fact that when a borrower has little to no equity in the property — allow me to rephrase that: when a borrower has no or little of their money at risk — it doesn’t provide people with much incentive to repay the debt. Moreover, in States such as Florida, where housing prices have been particularly hard hit by the financial crisis, the foreclosure process can take months and even years before the lender is able to take possession of the property, increasing the potential of loss for lenders and their investors by quite a bit.

U.S. authorities have launched a campaign against several sub-prime lenders for their predatory tactics and exorbitant service charges when it comes to dealing with some of their customers. This past week, Countrywide Financial, one of the biggest sub-prime lenders which is now part of Bank of America, was fined $108 million by the Federal Trade Commission. The FTC alleges that the tactics used by Countrywide were a direct effort “to extract the last dollar out of the pockets of the most desperate consumers.” The article includes a long list of service charges that Countrywide just piled on the tab, some of which were never disclosed in the mortgage contract to begin with.

While most people would say it’s the borrowers who must accept responsibility for their actions, I beg to differ. It takes two to tango and while some of the borrowers definitely carry some of the blame as the main cause of this crisis, the lenders carry an even bigger share of the blame. These lenders knew very well that the borrowers they were signing up were high risk. But they bet that the returns would be worth it. Their plan backfired. This situation is analogous to a group of sophisticated investors who took a huge gamble on risky bets and when they lost the bet they started suing everyone they can think of in a fit of rage.

You didn’t need housing prices to crash to tell you that borrowers who have little or no equity in the property would be the first ones to make a dash to the exit door once things got tough. Why wouldn’t they? It wasn’t their money on the line. These lenders may think they have the higher moral ground but what about borrowers who did take a mortgage and made all the payments on time and are now facing foreclosure because their current lender has gone out of business? Who would compensate them?

Let’s hope the FTC would go after the lenders that remain open and squeeze every dime out of them!