The Subprime Loan problem
By Douglas Jacobs, California Bankruptcy Attorney on Nov 6, 2007 in Mortgages
A lot has been written recently on the subprime loan problem. These are loans made to help you buy a house by structuring the pay back of the loan at less than the normal monthly payment. The “normal” payment is usually based on the amount of the loan, the length of the loan and the interest rate – computed by using the “prime” rate.
Then, after a year or two of making these minimal payments, the monthly loan amounts go up (and up and up). They have to go up so the lender can get its money back. But, the homeowner, swayed by the allure of the American dream – to own one’s home – is now buried in debt he or she can’t afford. This is one of the leading causes of the dip in our economy and of rising bankruptcy filings.
And it’s a national problem. Here’s a map, courtesy of the New York Times, showing the percentage of subprime mortgages in the country. Frightening when you realize that there are some areas where half of the mortgages are subprime!
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