Spike in Foreclosures “Just Tip of The Iceberg”
By Chip Parker, Jacksonville Bankruptcy Attorney on Mar 26, 2007 in Florida, General Bankruptcy Information
Senator Richard Shelby (R-AL) recently described the current spike in home repossessions as just “the tip of the iceberg.” He and Christopher J. Dodd (D-CT) head the U.S Senate Committee on Banking, Housing and Urban Affairs, and on March 22, 2007, they heard from regulators, industry executives, and consumers at a hearing to investigate the subprime mortgage crisis that could cause 2.2 million homeowners to lose their homes in the next few years.
So, who is to blame? Well, as it turns out, there’s enough blame to spread around. There’s the economy, the unrealistic growth in the housing market in 2005, the banks and, according to some, even you.
Justin Cole reports in a recent article, “The fizz came out of the US housing boom last year after several years of stellar growth, fueled in part by a speculative binge, but also by sales of “exotic mortgages” including adjustable rate mortgages (ARMs).”
Much discussion recently has surrounded “subprime” loans, which are higher rate loans sold to people with poor credit histories. These lenders are collectively referred to by consumer advocate groups as “predatory lenders” because they tend to seek out America’s working poor who are often unsophisticated when it comes to money matters. These low income borrowers rarely understand the terms of their home mortgages, and often, promises are made at the beginning of the application process only to be broken at closing. Desperate Americans are teased with a “low monthly payment” that frequently explodes in as little as two years.
It is easy to blame the borrower. After all, as one reader asks the Florida Times Union, “[W]hat did we expect to happen when money is loaned to people who do not have the discipline, either moral or financial, to repay a long-term debt?” It is a rather simplistic view from, in this case, a resident of Northeast Florida’s most exclusive address, Ponte Vedra Beach.
However, it is hard to imagine that Jennie Haliburton, a 77-year-old widow, doesn’t have the “moral discipline” to repay long-term debt. She told Chairman Dodd last Thursday that she responded to an advertisement from Countrywide Financial Corporation, one of the US’ biggest mortgage lenders, to consolidate her debt. Relying on the advice of mortgage broker, she ended up with an ARM without realizing her monthly repayments would leap from an initial $700 to $1,100.
Read the transcripts from the March 22nd hearing here.
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