Nov 12 2008
No Free Rides Here
The question of why some homeowners are getting bailouts has really been answered by the financial turmoil of the past few months. A huge spike in foreclosures, magnified by derivatives cooked up by Wall Street firms, nearly brought down the global economy. As it stands, we’re still likely to suffer one heck of a hangover in the form of a serious recession.
The foreclosure mess is far from over. Many of the riskiest loans — the ones where homeowners weren’t even paying all the interest that was accumulating on their loans each month, let alone touching the principals — are just now resetting.
Then there’s the whole vicious-cycle effect. As foreclosures rise, banks slash the prices of the homes they recover, putting downward pressure on everybody else’s property values. With more homes “underwater,” more fall into foreclosure when their owners lose a job and can’t sell, or simply decide to walk away.
That’s why the Powers That Be are finally getting serious about working with struggling homeowners. Given how interconnected everything is in our economy, their success in saving your neighbor from foreclosure might ultimately reduce the chances you’ll lose your job.
It may be that a lot of borrowers were complete idiots for agreeing to mortgages that were eight or nine times their incomes (a mortgage that was three times your income used to be considered a stretch in the days before lenders went nuts). Smart borrowers fixed their rates for at least as long as they planned to stay in their homes; dumb ones agreed to adjustable-rate mortgages on their brokers’ assurances that they’d be able to refinance before the payments reset.
The federal government is considering a plan that would help about 3 million homeowners avoid foreclosure. But borrowers didn’t get these loans in a vacuum. Mortgage brokers and loan officers downplayed the risks. So did lenders, who gave the brokers and loan officers fat incentives to push them. The Wall Street machine encouraged looser lending standards and created exotic investment products that wound up multiplying, rather than reducing, the risks. Regulators, meanwhile, stood by and basically did nothing. No one involved is covered in glory.
Neither is anyone getting an entirely free ride. Plenty of people will still lose their homes, and many who get workouts will have to live with trashed credit from the payments they missed before help arrived. The only way to truly protect yourself is to take your defense into your own hands. Find out how to do just that at www.ForeclosureDefenseSecrets.com.
