Foreclosure Predator

May 21st, 2008 | Tags: Mortgage Payments

The big question today is who let loose the prowling foreclosure predator? The bigger question is who will bell the cat? This year nearly 1.5 million families defaulted in mortgage payments. To take the instance of Olmsted County here more than 500 foreclosure postings are apprehended before the year dies out. This is a treble jump since 2005.The numbers cannot fully express the tale of personal woe behind each digit. Highlighting their plight a Saturday edition of Post Bulletin termed them as ‘Locked Out’.

Everybody pounces on the common villain the sub-prime mortgages. Till few months ago many had not heard of it. Today it is common as Enron. Predatory lenders peddled these mortgages to ordinary Americans with catchy enticing phrases like ‘why wait’, ‘why rent’, ‘no down payment’, ‘no closing costs’ or ‘buy a house today and sell it for profits tomorrow’. For those who already owned houses the temptation was to lure them with ‘if you need cash then don’t worry; if credit cards are pressing then don’t worry; borrow 125% on the value of your house; pay bills and have funds left over for a dream holiday you deserve it after all these worries’.

The ordinary householder could not resist such peddling. They overreached themselves hypnotized by this aggressive approach. But the economy follows its own rules. When the tide withdrew the beach was left littered with stranded borrowers. It was a financial disaster of tsunami proportions.

Apart from the sub-prime mismanagement there were the usual causes of illness, unemployment and divorce. These were further aggravated by rising prices of essentials. It was a deathly toxic cocktail predestined for doom.

Can this prowling menace, this foreclosure big cat that is growing fatter by the day be chained?

It does not take much intelligence to understand that a countrywide amnesty will not act as an instant silver bullet. It will operate as a temporary painkiller but not as a comprehensive remedial medicine. It will merely postpone the eruption. If the government nullifies the right of foreclosure lenders, then they will lose the incentive to carry on with business and grant loans. Without mortgage loans how will houses be purchased. If houses do not sell then how will the market recover? Locally Minnesota will be affected. Mortgage companies with less competition will raise mortgage rates and fees. Again this will reduce the number of buyers and so it will be going back to square one.