Foreclosure Madness — People Who Shouldn’t Own Houses Hardest Hit!

Every day I’m seeing more and more articles like this one.

“The Neighborhood Assistance Corporation of America said Countrywide (Charts, Fortune 500) was not doing enough to help people who took out subprime adjustable-rate mortgages (ARMs) over the past few years and now may lose their homes. Subprime loans are issued to borrowers with poor credit histories who often lack the funds to make large down payments.” (emphasis mine)

Somehow, owning a house has become a civil right here. People who can’t afford to buy a home are given terrible loans that they can afford for a time, and then are crying foul when they get foreclosed on. The terms were there when they signed the papers; they knew that the rates would go up. But now that they actually are going up, it’s a travesty… a crisis…discrimination, even!

“NACA leaders also criticized Countrywide for charging exorbitant fees to borrowers and not cooperating with NACA in renegotiating terms. NACA expects to be able to refinance only about 7,000 mortgages with the funds it has so it’s also trying to renegotiate financing terms with lenders, said Erick Exum, the group’s national director.”

Lots of people like to renegotiate their mortgage contracts; in fact, we do it all the time — it’s called refinancing. Refinancing typically isn’t an option for people who have poor credit — but then those are the people who have proven that they shouldn’t be home owners anyway*.

“Borrowers are not asking for a handout, all they are asking for is to make their mortgages affordable.”

These home owners made very bad financial decisions because owning a home was more important than being able to afford a home. Smart people research the various financial options and pick the right one for their situation. In some cases, for example a home you will only own for 2 years, interest-only loans can be a smart choice. In the same cases, adjustable-rate mortgages can also be the smart choice. They’re excellent financial vehicles if you know how to use them properly. They are not the way to buy a home that you can’t afford. If you over-extend yourself the tower of cards will eventually fall. Maybe when the interest rates go up as is happening now, or maybe when the first major repair is required and you realize that you can afford your mortgage but in 10 years of ownership haven’t saved up enough to replace the water heater.

As a society, our eyes are bigger than our wallets. We want everything that everyone else has, and we want it now — just as long as we don’t have to pay for it now. 2 years same as cash. Minimum payments and 20% interest that will keep us paying it off for 20 years. 7-year car loans. 40 and 50 year home loans. Gimme gimme gimme. And the current Nanny State keeps bailing us out.

It all has to end somewhere, folks. How are your finances looking?

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