For many mortgages, property tax and insurance is escrowed and is part of the monthly payment. This protects the lender and insures everything gets paid on time. It also helps the homeowner judge what the monthly payments will be.
Guess what. These escrowed payments were generally NOT done with subprime mortgages, because “lenders who insisted on escrows would lose business to those who didn’t.”
The upshot is that borrowers who have shown themselves to be the least capable of managing their credit affairs and who are most in need of the discipline provided by the escrow system don’t have it offered to them.
It will be interesting to see how many municipalities will soon have income shortfalls because property taxes aren’t being paid. This also shows how exploitative the system was, as escrowing payments was deliberately not done on risky subprime mortgages because then it would have been even more obvious the mortgagee couldn’t afford the loan.
