Foreclosures and Shady Mortgages

Posted in Foreclosures, June 17th, 2007 |

Countrywide is raging the tornado of foreclosures. El Paso County is no exception.

At the root of the problem are sub-prime loans, being made out by unscrupulous lenders. Chasing a mirage of home-sweet-home these dreamers have lost their way in the desert and do not know how to get out of the mess. The bait that hooked the fish was catchwords like, no down payment, interest-only payments and negative amortization. The gullible culprits were not qualified by ordinary standards to get loans because of bad credit history or low incomes. They never understood the terms of the mortgages; never made to understand.

Usually the initial rate of sub-prime loans shoots up after two years by as much as 5% resulting in a 40% increase of monthly installments. Sub-prime rates are higher by 2% as compensation for the risk factor and float up and down with other interest rates. Penalty clause prevents owners from refinancing through another mortgage route.

The game plan was to make people who had previously made little mistakes to make greater blunders to benefit sharks and vultures. The move had started a decade ago with the objective of trapping people to buy houses and thus fund mortgages to get exorbitant returns. But the players while taking into account the risk factor did not gamble for a situation in which the situation would spin out of control and properties fall down like ninepins.

The midpoint is the time between the start of the mortgage and foreclosure. This was less than 2 ½ years – a time period that went down during only one of the five years is being analyzed – 2002-2006. From 2001 and mid 2006 rates on foreclosed loans in El Paso County is averaged 1.6% above than current market rate.

The original idea of sub-prime loans was to serve as a bridge to connect those who could not initially avail of prime loans. They would be given a chance to re-establish their credit worthiness. But the opposite happened. The terms were so vexing that borrowers were never given a chance from the very beginning. They were purposefully kept in the dark. No avenues of refinancing were left open to them.

Once the market started cooling the situation became more exposed. Wall Street stopped funding new loans and raised credit card standards. The situation is getting worse. Senators are stepping in to frame laws to prevent further debacle.

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