Who is to Blame for the Mortgage Crisis?
Posted on November 6, 2008
Filed Under Foreclosures |
The entire country is consumed right now with what the federal government will do to solve the enormous mortgage crisis that threatens to take down quite a few big banks as well as millions of every day working Americans. While congress debates and argues over what is the appropriate dollar figures for the bail out and exactly who will receive the benefits, it’s worth taking a look at how we got into this mess to begin with.
The Consumer’s Part: For one of a couple different reasons, many consumers were put into sub-prime and interest-only loans which by design would raise their monthly payments on a yearly basis. Some of these home buyers were wrongly informed by predatory lenders that they would be able to refinance into fixed rate mortgages later on, thus the rise in their rates would not matter to them. A lot of these consumers took these loans because they did not have good credit and/or a down payment and these loans were their only chance at getting a home. The catch was they were to pay super high interest rates, sometimes twice the national rates at that time.
These were essentially consumers that either could not afford to buy a home but were given the chance anyway, or who could afford the initial mortgage rate but would not be able to afford the rise in years to come. The latter were convinced by lenders that they should not worry about the rising rates because they could negotiate better terms later. That opportunity never came later on. What came instead was our current crisis and the loss of their homes.
The biggest cause on the consumer’s end is the growing problem of Americans living above their means. Many of these home buyers should not have even been considered for loans, which take us to the lender’s part in our crisis.
The Lender’s Part: There has been a problem for years with lender’s giving out loans to people who could not afford to pay in the long run. It has been a silent epidemic and the ordinary person had no idea what ramifications would eventually come of it. They did not know that banking practices would put them billions of dollars in debt as a country in the future!
Big banking lenders have made their own billions off the super high interest rates charged to consumers who should never have been given loans to begin with, and now while the lower classes pick up the tab on the resulting financial crisis, the top branches of those big banks will retain their million dollar paychecks. These lender’s must shoulder some blame along with the people who have been living above their means, because they have been way too lax on deciding who to lend money to and eventually that had to come to a head.
None of this can be changed, but hopefully it will be learned from and avoided in the future.
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