After July's foreclosure rate surged 9% from June to July and almost doubled between July 2006 and July 2007, many expected August's market gyrations would follow. The Federal Reserve Bank eased the situation somewhat by attempting to control liquidity.
Now Congress is getting involved.
Senator Chuck Schumer (D-NY) has told lending giant, Countrywide Financial, to stop compensating brokers more for adjustable mortgages. Schumer said at a press conference that 40% of borrowers in an adjustable rate mortgage could have qualified for conventional financing.
As usual when politics and consumers mix, the results are framed by the different perspectives. Consumers took adjustable rate mortgages to lower their payments or qualify for homes they couldn't afford. The mortgage industry did not take advantage of the consumer. The consumer has taken advantage of a loophole that provided a year or three of monthly cash flow. Now with higher rates, those consumers who cannot afford their homes are going to have to take action. They will need to move or take second jobs or higher paying positions that involve other sacrifices.
Foreclosure should be the last possible resort. Banks and lenders did not cause the subprime crisis. Consumers did. While late night comedians joke about anyone qualifying for a mortgage, the same consumer truths were applicable in that market.
1) Understand the terms.
2) Don't overextend yourself if the worst case scenario you agreed to occurs.
Perhaps the second car has to be sold. Perhaps one of the children can't go to college this year or can only go part-time. By behaving as though a low rate mortgage is a right rather than a privilege earned by strong credit ratings, consumers who wanted it all are driving a financial crisis impacting those who had it all.
Consumer Help Web always reminds consumers to know their rights. Knowing their responsibilities is just as important.
Labels: Countrywide, financial, mortgage, sub-prime
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