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Wednesday, December 1, 2010

Why Homeowners in foreclosure because of Predatory Interest Rate Loans, Buying "too much House", or because of "Securitization" are not at fault.


Why are homeowners being blamed for the foreclosure mess?

"They bought too much house" is one common accusation. If the homeowners are married, it sounds like what they really did was think ahead and decided to GROW INTO THEIR HOME. One rule of thumb that applied before 2008 was that the longer one lived in a house, the actual cost of property taxes compared to newer homeowners becomes less over time.

Moving expenses can justify buying a long term house. Moving is EXPENSIVE. Moving costs can be as much as 50,000 dollars when ALL COSTS (including realtor costs) are considered. So homeowners who "bought too much house" were many times planning for the long haul and would have RECOUPED significant savings from not having to move for quite some time, and they would also have lower property taxes compared to those who move more often.
Buying "too much house" also allows for a parent, grandparent, or son or daughter to move back in if the economy goes south. ahem.

Buying "too much house" also allows for the possibility of a start up small business venture, long term storage, possibility of renting a room out, even converting a room or two for exercise to promote long term health.
"They should never have agreed to a subprime loan".
BANKS WERE NOT GOING TO GIVE UP ON THEIR CRAZY SUBPRIME OFFERS UNTIL THEY MET THEIR SECURITIZATION QUOTAS BECAUSE THEY WERE MAKING FRAUDULENT, MASSIVELY EXCESSIVE BONUSES AND PROFITS.
It was homeowners trying to do the right thing and be cautious that caused the banks to keep upping and upping and reupping their crazy offers until homeowners gave in to the fact that, THIS WAS A BANK, GOVERNED BY RULES AND REGULATIONS, and homeowners CORRECTLY ASSUMED that the banks could not make these offers if they were not legitimate.

When banks could mathematically show that the homeowner could move into a home for equivalent cost to renting, but it required a predatory loan to accomplish this, the banks crossed the line, not the homeowner.

Predatory loans are masked as low credit score punishment loans when the real risk is that the loan simply has too high of an interest rate attached to it. Did you know that if one homeowner receives a 4% interest rate, and another homeowner receives an 8.08% interest rate on the same amount of money, the 8.08% loan will need to be paid off in twice the time, even though the monthly payments and down payment are identical!

It's important to understand just how predatory the above example is. Imagine that two homeowners receive loans for an identical amount, and their monthly mortgage payments are identical. One homeowner pays off their home in 15 years, while the predatory loan will require 30 years to pay off, even though the loan amount and monthly payments are identical. That is a predatory loan!

An effective way to reduce predatory loans is not allow predatory percentage rates to exist, rather, just don't offer as much loan money and keep the interest rate more competitive.

"Investors need to be paid for securitizing mortgages no matter how bad the mortgage deal was that the homeowner signed." This is the scandal of all scandals.
There can be NO CHANGE IN TERMS to an original, pre-securitized mortgage agreement unless the homeowner agrees to it. If anything changes regarding the mortgage agreement, securitization included, without the homeowner's expressed, written, consent, the securitization should be voided and the homeowner should incur no consequences that result from change in terms that the homeowner did not agree to.
I'm not saying the homeowner does not have to pay their mortgage, I am saying that the terms MUST REMAIN UNCHANGED to what they were at the time the home owner signed their mortgage papers.
In my opinion, ALL securitized mortgage loans MUST RETURNED BACK TO THE ORIGINAL TERMS, and any payments, fees or predatory tactics that accelerated a foreclosure MUST BE UNDONE, investors CANNOT BE PRIORITIZED over the HOMEOWNER, and restitutions need to be offered to every homeowner affected, including those who have already lost their homes to foreclosure.

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