Foreclosure Medicine Will Give Relief To The Sick Real Estate Market

September 1st, 2008 | Tags: Mortgage

A dose of foreclosure medicine is just the palliative that the sick real estate market needs. It is an open secret that the lending body is buddy-buddy with Wall Street. This lending group is responsible for the foreclosure crisis of today. Till recently the real estate market had been fairly stable and healthy. But the pallor of the market dramatically changed when the sub-prime mortgages and its securitization culture was injected into it. These and other sub quality mortgages spread the virus that gnawed in the health of the economy.

It was inevitable that foreclosures would follow such types of loans because the borrowers did not have the income to afford these. The point is – why were they allowed to proliferate and multiply infecting every part of the socio-economic structure? The entire economy has been brought down to bite the dust.

The sub-prime mortgages were able to do this damage thanks to the tacit support and encouragement of Wall Street. The key players at Wall Street had their eyes on global finances including the waking dragon – China. Wall Street went all out for investments in mortgages. It became a dangerous circle. America poured funds into China and that money came back as capital for investment to purchase securities that were backed by house mortgages. This was a new type of investment wherein mortgages were bundled into million dollar pools – something akin to stocks and questionable bonds. These were sold to many investors who gained from the interest coming in from these mortgages.

But like any other schemes that smacked of quick profits this new type was not free from risks and hazards. A demand for mortgages was created that was artificially manipulated. Instead of the people wanting to buy houses the powerful investors vied with each other to purchase mortgages. The market turned upside down – not good for its health, it being an act that defies gravity. To make the arrangement work, higher interest rates were required. The mortgages were contracted with as many borrowers as could be located. They were lured in and it was only a question of a short time before the interest would rise. Either way the investors would win – it was a case of getting more interest or the property.

Instead of focusing on their regular clients the mortgage industry kowtowed to the investing giants like gods from another world.