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Tuesday, October 23, 2007

Housing Bubble Burst!

With the never ending boom in housing foreclosures comes the reality of what the biggest players in the bust did wrong or were victim of. Owning a home is the biggest goal of every up and coming generation and the market that served that dream ripped many of those same people off. While the President gave the green light to lenders to have a “Free Market” he also enabled them to run wild without care as to whom would get burned down the road.

Buying a home knows no political philosophy when the lender tells you can afford the mortgage. Provided you do not plan to eat in five or so years. Small print, really small print.

The mortgage industry has become a process the application production line and the ones that have to face the music are the people that were just passed on through the process. Raise your hand if you know five or more people that you for one know should never have qualified for a home loan?

With the enticement of home ownership, the lenders sold the people a bag of goods with a self destruct button on it several years later. Over at MSNBC they have this piece on the victims great loan options for capturing the American dream…

The plain old adjustable-rate mortgage spells trouble enough. But three high-risk loans are causing most of the trouble:

Teaser ARM. This loan features an alluring initial period of very low interest, around 1% to 2%, which later resets to market rates. About 1.4 million borrowers will be jolted back to reality in the next two to three years as their introductory periods expire. Payments on a $200,000 loan at 2% are about $725 a month; at 7%, they're $1,340.

Subprime ARM. Nearly half of loans due to reset are aimed at low-income people, minorities and people with bad credit -- folks who can't or just assume they can't get a bank loan at a reasonable rate. Many are in a shaky financial position to begin with and so are in greater danger of defaulting. Subprime (also called nonprime) ARMs start high -- 7% or more -- and go higher. And higher. They often feature a fixed, lower-rate introductory period. But when that ends, it's "just the old-fashioned squeezarooni," Cagan says.

Option ARM. This is the real killer. It gives homeowners the choice each month of paying the principal and interest, just the interest or an even-smaller minimum amount. Every month you pay the minimum, you're deeper and deeper in the red. And up to 80% of option-ARM buyers pay only the minimum, according to Fitch Ratings. Because the minimum payment doesn't cover the monthly interest, the deferred interest is added to the loan balance. After the loan balance grows to a certain point, the lender will demand that you start paying the full principal and interest -- on your now-bigger loan. - MSNBC

This is not a case of predatory lending by any sense of the word. This is a case of corporate gluttony. Make the quickest amount of cash as fast and furious as you can and let the people holding the loans worry about it later. Well, it seems as if the people holding the bag later is us. How does an economy survive when the fundamental basis of the economy is housing and that goes bust?

You can not by any means blame the borrowers of all of the snake oil options that the lending industry presented to them. Our government looked the other way. Our leaders looked the other way because a dollar was to be made by friends of friends and the checks cleared over at campaign headquarters. Tom Delay and Nancy Pelosi are just as guilty in this crisis because nobody said boo! Neither of them will here your screams for help when you loose your house to the jacked up call of your loans terms.

I’m sure that you have heard or seen the radio commercials where President Bush has authorized the refinancing of your loan if it met certain terms. Think again, if you could not afford the house to begin with, could you afford it now with a refinance?

Isn’t politics wonderful. They cut your throat and make you look forward to cleaning up the blood.


Cross posted at Bring IT ON!

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