Yesterday the House approved a mortgage bill designed to rescue hundreds of thousands of homeowners at risk of foreclosure. This is your point of view if you are a Democrat. If you are a Republican, this bill bails out “scam artists, speculators and reckless borrowers.”
I’m not a fan of the government interfering in private markets, but it is worth noting the rhetoric being used here. Language such as “scam artists, speculators, and reckless borrowers” are cacophemisms. They are words that make something sound worse than it really is. Using words with value biases built in make it difficult to think through the real issues–and there are important ethical issues to be considered here.
Let’s analyze this using value neutral words and see what it looks like. Tom Brown, a banking analyst who also runs a successful hedgefund, discussed the state of sub-prime at the BAI Mavericks in Banking Conference this week in San Francisco. “In 2004 6% of borrowers indicated the loan was for an investor property. In 2006 it was 13%. We think it’s double that.” In other words 13% of the borrowers were buying houses for investments but claiming they were going to owner occupy them.
From Tom’s point of view, there is real fraud here–home purchasers lied about their intent to occupy the home in order to get better rates or more favorable loan terms. Using Tom’s numbers, one half of foreclosures were from non-owner occupied, of which one half lied, means that 25% of the subprime problem is from buyers who lied to their borrowers. Buyers were not the only ones who abused this system by any means, but they were a big part of it.
“Scam artists” paints too broad and too negative a brush. Investors who through greed or ignorance crossed the line into fraud does not have the same catchy ring, but is more accurate.
Tags: subprime, language, ethics, ethics for the real world, clint korver
