So you purchased this cute little house at a great rate and so far things have been going pretty good. At least they were until last month when you opened the monthly payment notice and found the payment had doubled. Sure you knew it was an adjustable rate mortgage. You knew you were what they called, “sub-prime!” You remember that. It was on page sixty seven of the 200 pages you signed at the closing. But this is beyond you ability to pay!
Not to worry, you can refinance and sell the place if you have too. You didn’t want to live here forever anyway! Oops, sorry; page 139 says that you can’t pre-pay without making a hefty pre-payment penalty. As you figure it, you’re going to need to do one of two things. Give the house to the mortgage lender and hope they can sell it so you don’t owe them any more than you borrowed. Or you can, do the easy thing, double your salary and make a bigger payment.
Sounds like a nightmare. It is, and it is also a reality for homeowners all across the country. Initially the hardest hit areas of were in Arizona, California, Nevada and Florida, but in reality the crisis is all across the country. Rates of foreclosures right now; pardon the pun, are going through the roof and people are loosing their homes in astronomical numbers. And this is affecting renters as well, who were never late with a rent payment. If the owners of the rental property are in foreclosure, as a renter you have no rights and have to move. You may be asking, how did this happen?
For some it was as simple matter of buying more than they could afford. For others it was actually fraud. Unscrupulous mortgage lenders in order to meet quotas and get a piece of the booming real-estate market actually lent more money than their clients could afford to pay back. Some buyers were encourged to figure the cost of a new flat screen into the mortgage cost, ouch! Others found the new ease of credit just too tempting and got themselves second and third mortgages on the equity they had in their homes. Hundreds borrowed against their houses to pay off high interest credit cards that included paying off last years Christmas presents!
Many were encouraged and allowed to borrow more than their house was worth, because the value of their home had been on a steady increase. In many cases though, zealous lenders looking to make closing costs and exorbitant closing fees approved people who didn’t have the means to make the payments. In an era where credit is easy to get we find that this is more than just a wake up call America, it’s a cruel reality.
Congress is actually trying to stave off the kicking in of the higher ARM rates, but the banks and investors want to know when they will get their money! It is going to be very complicated and anyone with an eye on history and this administration can expect that in the end, the banks will win.
Lewis Black has a routine where he explains he tried to learn economics but couldn’t since they taught the class at eight in the morning. Unfortunately this lesson is being taught at high noon and it’s one were the bank auctioneer in way too many cases, will be the one with the final say!