Understanding the crisis in America’s mortgage market isn’t really hard when you look at the big money schemes to milk the public of more money to fill corporate coffers.
As an example, say Mr. & Mrs. Average Dreamer want to own their own piece of the American dream, they have picked out a very nice little four bedroom, two and a half bath home on a nice sized lot in the price range of half a million dollars. Now Mr. Dreamer has a few thousand tucked away, he thinks it would make a great down payment. Mr. Dreamer works at the factory, brings home twenty bucks an hour. The couple have been renting for a few years. Mrs. Dreamer works as a retail manager and makes about fourteen an hour.
They go to a lender, finding out in order to qualify for a loan, only a third of their income can be tied up in bills or living expenses. They figure out on paper seventy percent of their money goes toward bills; the American dreamboat has just hit its first ice burg. Slowly sinking at the bow, with debt starting to slosh over the deck through the scuppers, Mr. Dreamer and his wife have nearly given up when I.R. Greedy, their lender throws them what they believe to be a life raft in the form of a sub prime mortgage loan. This loan is interest only for the first five years, it is at 3 percent for the five years, it will give them lower payment per month. I.R. Greedy explains in all likely hood by the time the five years is up, Mr. Dreamer will have been promoted, he will not have any problem with getting refinanced before the loan resets.
According to Wikipedia on the web:
“Sub prime lending is highly controversial. Opponents allege so-calledsub prime lenders engaged in predatory lending practices such as deliberately targeting borrowers who could not understand what they were signing, or lending to people who could never meet the terms of their loans. Many of these loans included exorbitant fees and hidden terms and conditions, and they frequently led to default, seizure of collateral, and foreclosure. While often defended as lending to borrowers with compromised credit histories.”
The lending institutions are to blame because of the way they deceived the American public. If you look down the road four and a half years, the Dreamers have not improved their financial situation because the added fees have kept them “house poor”, they cannot get anyone to refinance them with a more favorable loan. Their monthly payment doubles at the five year mark, they can’t make the payments, have to walk away from their dream with nothing to show for five years because not only have the payments doubled, so many houses on the market because of thousands of other people in the same situation. The home they bought for five-hundred thousand is now selling for two-hundred thousand, they owe 420 thousand. Their dreamboat is lying on the bottom of the ocean . Mr. and Mrs. Dreamer may be able to rent somewhere if they get lucky.
Now to the solution of this mess. I have been reading on CNN.com, The Plain Dealer, also a report on the Hope Now plan by President Bush. I haven’t found one yet looking like a permanent solution to the problem. Stop the ARM’s, stop the sub prime mortgages, go back to only lending money to people who are in a situation to pay it back over time, who can qualify for conventional loans. Perhaps doing these things will eventually turn this mess around.