The Crux Of The Foreclosure Problem Is The Yawning Gap In Income
As the housing crisis rages the blame game goes on. The crux of the foreclosure problem is the yawning gap in incomes.
The banks are being blamed for seeking out the gullible and making them swallow adjustable rate sub-prime mortgages. Scant attention was taken of the fact that these borrowers hardly had the income to maintain the monthly payments once the latter began to rise. Some of the borrowers were greedy and looked for new loans planning to sell them off as the housing boom marched on to astronomical heights. They thought this would continue without stumbling – after all real estate prices could never fall. These were the borrowers who understood the nature of the loans and knew they could never be able to pay the enhanced rates. Despite this they went ahead banking on the theory that housing prices would continue to rise to dizzy heights. Just by selling the units they would not only clear the mortgage but also pocket neat profits. Another alternative they bargained on was refinancing with low initial payments while taking out cash from the equity for buying luxury items like boats, jumbo television sets and other adult toys. This analysis of the foreclosure crisis is partly true looking at it from a particular angle.
There are other economic factors also at work that are even more deadly than the traditional greed basic to man’s lower nature. Looking at the statistics it appears that the rich and wealthy in California have not become foreclosure victims. This dubitable honour has been left for the middle class – it is they who are getting most of the foreclosure notices. This is happening because the income gap is widening into a gulf. The rich are getting wealthier and can afford the increased payments while the middle lots are losing their purchasing abilities. The inflation is having a greater impact on the middle class. Proportionately they are more affected by rise in food and petrol prices. This picture becomes lucid and clear from the latest information coming in from the state’s Franchise Tax Board that has been analyzed by California Budget Project. The latter, based in Sacramento is non-partisan in its attitude.
In the fiscal year 2005-2006 the income of the 1% richest Californians increased by 3% while the middle class comprising of 40% saw their incomes fall by 1%. The price of essentials rose by 5% during the period. The impact on the middle class is on the conservative side.
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