By Jesse Herman, contributing editor
First we had the stock market crash in 1929 that lead to the great depression, then the ’68 crash and onto the 24% economic worldwide decline of 1987. In 2000, the dot-com bubble burst and now it’s 2007: the year of the great mortgage meltdown.
It is time for last-minute “restrictions”. Like a kid trying to clean up after a party as his parents pull up in the driveway, the damage has been done and repercussions will be felt. Yeah, judgment day is fast approaching for many who took loans they could not afford and are now entering bankruptcy and foreclosure hell. Those who are at fault; all parties involved.
It is the mortgage lenders and bankers who were “loose” in their lending practices, investment banks that confused ratings agencies into dictating faulty high credit scores to some mortgage-backed bonds, money managers wetting their appetites with a quick buck and the everyday-struggling-to-make-it potential borrowers who closed their eyes and accepted cash on a hope that the sun will come out tomorrow. Don’t bet your bottom dollar.
“Liar loans”, “teaser loans”, and exploding adjustable rate mortgages were granted to low-income families with poor credit, essentially to those who could not afford it on the whim that they would eventually be able to pay back at higher mortgage rates. Now, according to the Center for Responsible Lending, 1 in 10 recent black home owners will lose their homes compared to about 1 in 25 for recent white home owners.
This stems from many in the subprime mortgage market who targeted inner-city communities. Big surprise, the American dream is being sold religiously for a quick buck without thought or care about consequences. Big surprise, the inner-city is being target by wealthy people in suits.
Our government has always tagged home ownership with being successful and through persistent brainwashing (i.e. sales), now bankrupt borrowers became addicted to the idea.
This is not to excuse borrowers. Life-altering decisions should be well thought and thoroughly researched. Still, this type of story has been played out too many times. Something should have been done 4 years ago, not now, and while lenders are quickly tightening their restrictions it is too late for some.
Market analysts have been going back and forth debating how the declining mortgage industry will affect the rest of the economy. Many minimize its influence, while others warn of a bleed over. Whatever the result, you would hope that we have learned our lesson after seeing this story play out time and again. Truth is, the devil wears many outfits.
