Lending Policies to Blame For Mounting Foreclosure Figures

July 31st, 2008 | Tags: Foreclosure

The lending policies of the American economy are to blame for the collapse of the foreclosure market in recent times. The easy access to all types of loans such as cars, houses and college education have increased consumer debt in the market, while lenders are making big business out of it.

The priorities set by the lenders in their business deals have undergone a sea change. The lenders of yesteryears laid emphasis on the borrowers’ repayment capacity, the criteria that have taken a back seat in recent years. Majority of consumer loans are backed by securities and sold to investors, to whom the fees and charges generated while loans are being made, is of greater importance than their repayment. It is immaterial whether the borrower is burdened with a foreclosure in future.

Lenders formulate new methods of extolling more profit from their borrowers. The prevailing market interest rates have dipped to a single digit in recent years, but the rate of routine charges on credit cards issued to customers have increased considerably from 17.7% in 2005 to 19.1% in 2007 that adds billions of dollars in interest charges to credit card bills in a year. CardWeb, a website that publishes information and data on credit cards and payments, released online that average late fees rose to $35in 2007, which was less than $13 in 1994.Customers are usually charged a fee for exceeding their credit limit, which also more than doubled from $11 to $26 a month, in recent years.

Fees charged for borrowing to purchase a house registered a steep rise within the past few years. Mortgage lenders charged exorbitant rates at every stage of the loan process-$75 for e-mail, $100 as document preparation cost, and $70 as courier fees-totaling almost to $700 per mortgage. These fees known as “Junk Fees” have almost doubled recently.

Consumer loans are no longer meant to be repaid. The policies that the lenders have adopted have foreclosure ripples down the spine of the American economy. Each day witnesses several additions to foreclosure notices, foreclosure proceedings and foreclosure houses going under the hammer. The effect of wanton lending by mortgage agents, who make debt sound easy and risk-free business, had begun to tell.

The bankruptcy experts and market researchers believe that lending policies needed to be revised keeping in mind the financial status of the borrowers and the ruling crisis of the country at present.