Stock market tumbles as investors flee subprime lenders

02 Aug Stock market tumbles as investors flee subprime lenders

Sinking Subprime MarketThe stock market has lost 7% of its value in less than two weeks as a result of investors fleeing the subprime market. Foreclosures are up 58% from the same period last year reports Alex Veiga of the Associated Press, and there’s more bad news: American Home Mortgage Investment Corp. may be heading into bankruptcy court amid record losses.

These subprime loans were underwritten with no virtually no proof of borrower income, relying upon a “booming” real estate market fueled by fraudulently inflated home appraisals. Furthermore, borrowers were oversold by unscrupulous brokers who promised refinancing before the teaser interest rate reset to unconscionable levels. The result has been disastrous, creating victims on both sides of the transaction. Now these mortgage companies are being attacked by the borrowers for violating the Truth in Lending Act and by the investors for doling out their money so carelessly.

The knee-jerk reaction of investors has been to foreclose upon these homeowners at record pace. Investors just want to cut their losses, but if it was the subprime lenders “innovations” that got them (us) into this mess, why don’t they innovate themselves out of this mess? In this slumping housing market that continues to implode onto itself, do these guys really want the house back?

The solution may be to actually work with these borrowers to avoid the foreclosure, but lenders would rather eat their own hand than rewrite an oppressive mortgage.

The solution could be right under our noses: a “bankruptcy bailout.” What’s that? Stay tuned . . .

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Chip Parker is the managing partner of Parker & DuFresne, P.A., where he represents Northeast Florida businesses and consumers facing bankruptcy, and homeowners facing foreclosure. His firm files more homeowners in the Mortgage Modification Mediation Program than any other law firm in Northeast Florida. Parker is the recipient of Jacksonville Area Legal Aid's prestigious Award for Outstanding Pro Bono Service. Mr. Parker is an active member of the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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