Buffett as victim....

Reader comment on: Buffett 2012 Annual Letter

Submitted by Fast Eddie (United States), Feb 26, 2012 12:22

In re his first point, about homeowners refinancing their homes, Buffett has a pretty good argument that, based on readily available data, millions of homeowners would not be in the position of being 'underwater' (i.e. having negative equity) if they had not refinanced their mortgages to extract every last dollar of paper profits from their homes. His use of the word victim is apt here because many of these refinancings were in the form of 2nd (and even 3rd) liens placed on the homes and many of these loans carried explicit terms that required the borrowers to spend the funds on improving the value of the home, i.e., to add value to the home which, in effect, securitized the additional funds. And now, based on forclosure data, it is clear that many, if not most, homeowners who agreed to these terms did not honor them. The money was spent on cars, vacations, et. al. which benefitted the borrower but victimized the lender by not adding to the value of home. There is a word for this and it is FRAUD, and I think that fraud is cause enough to justify Buffett's use of the word 'victim.'

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