Loan Modifications And The New Predators
by guest author Wizcon
It is never ending. Throughout the housing bubble, I would arrive at the homeowner’s house and watch as they refinanced their homes with adjustable rate loans and tap into the equity on their homes for the lamest reasons. A new SUV, vacation, go to the casino, top of the line appliances, electronic toys and on and on. Many did it to consolidate debt like the loan on the new SUV, eliminating credit card debt, reducing their monthly mortgage premium and eliminating a second mortgage. All were aware that their interest rates would go up in a couple of years. But virtually all said that their loan officer promised they could refinance into a fixed rate before that happened. I heard the borrowers say it and on occasions the loan officers say it. It was party time. Everyone was happy. The loan officers were looking at another commission down the road. The homeowner got to start over on their credit cards and the lenders had another asset with the promise of great returns to sell and bundle.
It didn’t happen for all too many. Their house values went down. Most held mortgages for the full value of the house or more and it was no longer worth that much. They do not qualify for the loans anymore. The Master of ARMS (adjustable rate mortgages) Countrywide’s Angelo Mozilo left the sinking ship to form another company. He wants to buy back the bad loans he helped create (and lied to investors about the risks ) for pennies on the dollar. Better yet he was in line with his hand out for a Legacy Loan from the government to do so. He is a master hedger. Housing values will go back up. He knows how to loan to risky borrowers. He has also been indicted by the SEC for lying and insider trading. Given that he found struggling homeowners “Disgusting”, those very same homeowners made him a very rich man. So that is the mentality of those handing out the bad, risky loans. They counted on the relatively inexperienced financial savvy of the homeowners of the newfangled subprime market. They homeowners got lied to also. The lenders lobbied for Fannie Mae and Freddie Mac deregulation and contributed handsomely to the campaign efforts of those supporting the deregulation. It is a narcissistic world. There was no consideration of the effect on the homeowners and the economy. They got theirs and are in position to get more.