The sub prime mortgage market is collapsing under the weight of unregulated greed by predatory lenders. These home loans were given to almost anyone who applied and had onerous terms that are beginning to kick in and causing an upsurge in foreclosures. The housing market has been the biggest driver of our economy under this Administration. Home ownersip rates were one of the only accomplishments George W. Bush was able to run for re-election (or election, excuse me), upon. Even it has proved to be ephemeral.
It was a house of cards. Instead of conventional, fixed rate mortgages with normal down payments, high risk borrowers were given loans with low rates, low down payments, and escalation clauses. As interest rates have risen so have the rates on these loans. Homeowners can no longer afford their homes as mortgage payments are doubling or tripling. Disclosure of terms was unregulated and/or unenforced and mortgagees either didn't read the terms or couldn't understand the complicated legalese. Nothing was properly explained or disclosed at settlement.
This is what happens when markets go unregulated and laws aren't enforced. The greed of the lenders overtook any sensible approach and now it may cause the entire economy to tank. Real estate markets are softening and an influx of foreclosed houses onto markets will hasten a decline in home values. Because this is what has fueled consumer spending, Alan Greenspan predicted a recession by year's end.
With no more home equity to tap into and sky high credit card bills Americans will find themselves stuck between a rock and a hard place. Well accustomed to using their rising equity to bail them out, falling prices may actually see creditors calling sme of these loans. People won't be able to sell their homes because they'll owe more than they're worth on the market. The alternative is walking away and letting the lenders foreclose.
The second largest company in the sub prime market is about to fail and the number of mortgagees who missed making their payments at the end of 2006 is sending shivers through the stock market. The foreclosure rate is the highest in forty years. FHA loans are at record default rates. Things are only going to get worse.
This is all reminscent of the 1980's when Ronald Reagan deregulated the savings and loan industry. Long the place for mortgage lenders, they were allowed to diversify and, without regulation, went on binges resulting in tens of billions of dollars in taxpayer bailouts. Neil Bush, the President's brother, was one of those who ran a bank into the ground then was bailed out by the taxpayers. Arizona Senator John McCain was involved in one of the scandals, a member of the infamous "Keating Five."
I'll bet this will entail another huge taxpayer bailout of the banking industry. An economic sector unwilling to learn from past mistakes, with enormous clout in Washington from people like Chris Dodd, an intense dislike of oversight and regulation, bankers will use the specter of epidemic homelessness to convince the federal government to, once again, save them from themselves.
How many times are we, the taxpayers, going to play this game with these bankers? They're playing us for fools and we allow them. The risks are too high to not save all these homeowners victimized by predatory lenders. Laws are passed then repealed by greedy GOP congressmen who believe in "free markets and unregulated business." Unregulated business is a disaster, always has been and always will be. They don't care though as long as the campaign cash flows freely and the golf outings to Scotland continue.
Guess who gets the bill for this corruption dumped in your lap? You the taxpayer. Again.