I have to chime in here. I will say that I have no sympathy for the subprime lenders and have all the sympathy in the world for the borrower. Yes, it is easy to sit here on our perches and say that the borrower should be educated and read the fine print before they sign the dotted line. It is easier to sit here and say that they shouldn't have borrowed the money in the first place for a home that they couldn't afford. However, the reality of the situation is this: People need someplace to live. They need a roof over their heads and, yes, I know, they could have rented. But that's just not realistic for some folks and for some, it really doesn't make sense. 4 years ago when the housing market was booming, housing prices hit the roof. Subprime lenders [as well as prime lenders] used ridiculous and devious methods to lure buyers into the market. They teased them with low ARMS, no doc loans, whatever. No one takes out a mortgage that they think they can't afford. Key word, think that they can't afford. They hear these teaser rates, the loan goes to close and either the rate changes at closing [frequent] or is going to change in 2 or 3 years [and they assume that their situation will change and they can get a better deal then]. Once at closing, the borrower is pretty much between a rock and a hard place. Accept the deal [with the jacked up interest], or lose the house. Where do they go then? On the street? Of course, the educated borrower would just walk away, right. Wrong. They don't. They are already too far into the game to start over. The lender has them by the kahunas. So they take the loan. A year goes by fine and maybe two years go by fine. They are making payments, albeit struggling, but they make their payments. Suddenly, those teaser ARMS are going to change. The $1500 mortgage payment is now $2000 and those that were barely scraping by who thought that they would be in a better postition are not. They can't afford the payments and then the foreclosure game begins...
I think the issue is with the subprime lenders, not the borrowers. We all believe that things will get better with time. We all believe that we will make more money in two/three years and believe that scores go up in 2/3 years. We all believe that house values will increase and equity will increase. In reality, it doesn't always happen like that. It rarely does. Suprime lenders prey on borrowers beliefs that these things will happen and convince the borrower that the 2/1 3/1 ARM is a great idea. They fail to make it clear to these unsuspecting borrowers that this is probably a good idea only if the above occurs. They don't tell them that if their situation stays the same or if they lose their job or their kid gets ill and they have medical bills out the wazoo that they will more than likely not qualify for a loan in 2-3 years. And then what happens? They are stuck, they can't pay, and the house is foreclosed on. Anyway, enough of my soapbox. Let it ride, that I believe that subprime is the offender and not the borrower.
