Sub Prime Lenders Need to Pay for Their Greed.

The news is continuing to look bleak for the housing market. One statistic I saw that was staggering was that one in every thirty one mortgages is now in jeopardy of foreclosure. When you think about it that means almost one home on every neighborhood block of homes is going back to the bank. That is a frightening thought to this observer.

From the first moment these mortgages were started, red flags should have been going up by the financial community including Wall Street. Sub prime borrowers, meaning individuals with marginal or poor credit ratings, were being approved for home loans that any clear headed observer would realize is an accident that has already happened but just needing an obituary written about it. Well, now as tens of thousands of Americans lose their homes, and banks and commercial paper companies write off billions in bad debt, the obituary is now on the front page of the newspapers.

The whole system was a creation that would have made directors of Enron blush. Prime was down to zero, homes were being built at record levels and families who didn’t have down payments or solid track records with paying their bills were still wishing they could buy the home of their dreams.

Those ingredients when mixed with a dose of corporate greed and a lack of oversight from everyone including the Federal government made the debacle we are now facing as obvious as the appeal of a new house.

The loans were great commercial paper. Houses were being sold at listed prices and lending institutions were able to tack on all kinds of extra fees and charges. A borrower who found a mortgage payment not much different than their rental costs didn’t care that the initial interest rate was higher than that offered to the prime borrowers nor what costs were being added to their loans.

The loans, being sold like commodities, were an easy sell. Higher returns than conventional mortgages plus every sale of the paper created profits for banks, mortgage lenders and commissions for brokers.

It was all perfect save one fact. Prime couldn’t and didn’t stay at zero.

Sub prime borrowers were all given mortgages tied to prime under the parameters of an adjustable rate mortgage. As prime was gradually increased, the monthly payments on homes individuals could just barely afford started moving into the realm of impossibility. People who had trouble just getting by now found their mortgage payments doubling and tripling as an industry and a Federal Reserve Bank that never has understood economics drove them into default. The fact is obvious. People who don’t have any down payment money also don’t have any funds in reserve and when things go awry, there is no nest egg to break open to help.

Now we are faced with a financial debacle that has lending giants writing off billions in bad debt and selling their equity to Middle Eastern financial cartels to remain afloat. All the while a U.S. government ponders how much they can help without rewarding usurious lenders except those that contribute to their political party. In all of this our Federal Reserve Bank hems and haws about whether interest rates rising had anything to do with driving thousands upon thousands of Americans into foreclosure and bankruptcy.

The precipitous drop in the housing market will push our country close to recession. What will happen to the principals involved in this catastrophe remains to be seen. People don’t need to be fired. They need to be put in jail. After all their commissions and bonus checks are forfeited I would hope.

The sub prime market was a sham from the start based on making huge profits now with no contemplation of later repercussions. Everyone involved in this system needs to pay the price. Right now only families who had the chance of their dream coming true are suffering. All the while financial executives being driven to work in limousines ponder how to keep themselves from justifiably losing their jobs. At the very least, they shouldn’t.

Comment by Danny Davids^(13,494) (172 days ago.)

Comment by Mike Fak^(18,246) (165 days 22 hours ago.)