Banks… and Other Scrooges & Grinches

The season of giving is upon us, and, guess what, people are being given eviction notices, from their homes! That’s the result of their defaulting on mortgages.
Mind you these mortgages are somewhat fishy. Banks, mortgage companies, and other loan generators are beings accused of predatory practices.
The recipe for this disaster– some 2,000,000 potential defaults in the coming months– is this.

1- Start with someone who can’t really afford to purchase a home yet.
2- Offer this person a mortgage in the amount of 80 percent of the house value, and a second mortgage at a higher rate for the remaining 20 percent. Buyer’s happy! A house with no down payment is a great deal!
3- Mix in low, starter, teaser interest rates, that reset to much higher rates in as soon as one year.
4- Remember, the buyer really can’t afford the loan amount(s).
5- Now, add in a booming housing market. Prices keep going up and up like they’ll never stop and interest rates remain low or decline. This enables refinancing purchases by those sucked into this recipe.
6- The unsuspecting, ignorant, or speculative buyer now pulls out some cash as well. Spends it.
7- Oops, paymen’s can’t be met, so, re-fi, then do it again, and again…
8- After a while, unsustainable housing prices are reached. Lenders get jittery. Interest rates go up instead of down.
9- The buyer is now, simply, SCREWED.
10- For an extra special garnish, add other human factors such as the desire to own a home (a basic human need– shelter), immigrant communities unfamiliar with the ups and downs of the U.S. housing/ real estate cycles, and unscrupulous lenders who push mortgages on the ill informed so they can make their commissions on those loans.
Things are so bad that even the heartless Bush regime has made a proposal to stem the tide of this foreclosure tsunami. While largely voluntary, the proposal does address some of the problem by preventing the resetting of all those loans to their usurious rates. Of course the only reason the Bushies are doing even this little is how bad Republicans would look without some action. Mortgages are already become a presidential campaign issue.
One thing to watch out for is the potential for the White House, and even Congress, taking measures that will “save” the financial industry from paying the price of its greed, but not helping individual borrowers. The key here is to keep people from losing their homes, credit, and often, life savings.
I think an investigation to uncover the most egregious loan sharks and their unsavory practices is called for. Then, a few heads, at least, should roll to act as a warning to any future lenders considering suckering the least able among us. A few prison terms for both the big fish and the local-loan-guys would be a good deterrent. This is no crime of passion, committed in the heat of the moment. It is base, conniving, money-grubbing at its worst.
The Armenian angle to all this is dual. People will lose their homes because many in our community fall into the categories of recent immigrant, lower income, and/or unfamiliar with the housing market. This will cause individual families pain. Perhaps the ARS and others ought to gear up to help out in some way. More interestingly, remittances to Armenia could decrease, hurting the country’s economy. How? The largest part of such remittances comes from those with immediate family in Armenia. They are the most recent arrivals in our community, and most susceptible to the fast talking loan sharks. If these families’ lose their “wealth,” or, more appropriately, false-cash-flow/income generated by the refinancing option, what funds will they send to Armenia?
Keep an eye on this, and let your Representatives and Senators, and even state legislators, know how you feel about the ripoff artists and their victims. You ought not pity the speculators though, they took a risk, and must pay the price.

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