In These Times: Our Toppling House of Cards

[marmar]

Views > August 21, 2008
Our Toppling House of Cards
By Juliane Malveaux




It is painful to watch a house of cards topple. Yet, even as it’s being built, we know its destruction is imminent.

The collapse of our nation’s housing market might have been predicted by the banking sector’s overzealous expansion in homeownership and the infusion of home-equity loan dollars into an otherwise dragging economy.

Once upon a time, home loans were offered at fixed rates for 30 years. People saved 20 percent of the value of a home to show credit worthiness. Mortgage payments didn’t fluctuate on fixed-term loans and there was no element of gambling involved in the process.

In the last decade, though, the government developed lending instruments to facilitate homeownership — rates were fixed, rates were variable, payments were set at lower than the interest rate, with high balloon payments expected at the end of a loan. Mortgage brokers worked with borrowers with credit challenges to find loans, offering loan terms that were affordable in the short run and disasturous in the long run.

This fiscal creativity was a function of home values rising so rapidly that people could count on tapping into extra cash and income from their home equity to finance automobiles, education and consumer spending.

Lenders decided to gamble and turn a market that generated marginal profit into one that produced big money. Those deemed not credit worthy — or those without access to information about affordable loans — got subprime loans that offered them too little for too much. Those hoping to renovate their homes, for example, found themselves offered more loan than they wanted, and at higher terms than they were comfortable with. ......(more)

The complete piece is at: http://www.inthesetimes.com/article/3856/our_toppling_house_of_cards/

[grannie4peace]

1. bush encouraged it every chance he had... i got so sick of his statements

on how many new home owners there were. i hope the hell this follows him the rest of his life!!!!!!