Now the Treasury Finds the Root of this Crisis

Most of this economic turmoil finds its genesis with the American homeowner. Today the Treasury and FDIC finally figured out that Wall Street was an effect and not the cause of the bad and overpriced mortgages that were easily handed out from 2001-2007. They are preparing to spend up to $500B to guarantee loans to give mortgage companies a safety net when refinancing high interest ARMs and other loan structures. JP Morgan already plunged in, before the US Govt intervened, to proactively save its customers from foreclosure.

Most of the foreclosures could have been prevented if the banks and mortgage companies would have worked with people who were suddenly facing a 30% to 50% increase in their monthly mortgage payment. The problem was they would not concede anything to their “Customer” because we should have known what we were getting into. I am not talk about people who lied on their mortgage applications or did some other illegal thing to get a home, I am talking about the people who had low credit scores and steady jobs and wanted to join those who to have obtained a piece of the American dream. Sure they might have gotten their home by the skin of their teeth, but they could make the payment (and were making the payments) before the interest rate increase. These people should have been saved and need the relief.

These loans are relatively easy to spot so lenders should have been proactive to offer help. However, the average lender was only accumulating enough loans to package and sell to Wall Street so they didn’t care if someone was struggling to make payments under the new interest rate. They were only concerned when the loan was on their books. When those avenues to sell dried up in 2007, then lenders got serious about how to save their loans. They initially did this by foreclosing on the property to rapidly sell the home and limit the loss on the loan. When property values dropped through the floor, they then went to the U.S. Govt to get a bailout. It is not only until now that many lenders are trying to work with the homeowners to save the properties. To me this seems like the bassackwards way to do business.

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