Mortgage death spiral


AP has a clear, understandable article on subprime mortgages, focusing on a Colorado couple who is being foreclosed, primarily because their mortgage payments jumped up way high coupled with an auto accident that made the wife unable to work for six weeks. That’s important to note, foreclosures often start when someone can’t work because of sickness or injury, not because they’re deadbeats. But once the process starts, it’s a death spiral downwards.

Owners in trouble are living in homes that may be worth substantially less than they owe. They can’t sell or refinance. They are ensnared in loans whose costs keep rising.

And when they get behind on the mortgage payments, which may have had a balloon payment they didn’t know about, the interest rates on the loan gets raised. Um, if you can’t pay the loan at 7%, how can you possibly pay it at 12%? Yet that’s what happens under current loan shark subprime mortgages.

Why is this deliberate gouging of those least able to pay even legal? This is capitalism at its most exploitative, and is a deliberate transfer of money from the working class to the already wealthy. Mortgage brokers and Wall Street investment banks have made billions from subprime mortgages, and that money came from the working class, many of whom are now losing their homes.

  • dj

    The first time I bought a home– a condominium in Gardena in 1989– the realtor “helped” us find a lender that would approve us. Our loan (with an adjustable rate) had a payment we could afford, but just barely. But at the end of the year, the rate adjusted and the payment went up. Isn’t it funny how rates always go up and almost never down? Meanwhile property values dropped, wages didn’t increase, and I was in trouble. Long story short: eventual foreclosure.

    The system is flawed because realtors want to sell, loan brokers want to loan, and both get paid on commission. No sale, no income. And neither suffers if the buyer loses in the end. But the buyer and lender do. So do the community and the neighborhood (foreclosures tend to reduce property values).

    The system is predicated on an educated consumer, but these loans most often go to those who don’t know better. So the solution is either more regulation (ick) or more education (how un-American!). Or, let the salespeople take advantage of those who just might have had a shot at the American dream.

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