[#1]2008 Year Of The

Why is the foreclosure crisis so out of hand? Is it because so many people just don't want to pay their mortgage? No. If you check the news lately on stopping foreclosure you'll notice a common theme among homeowners facing foreclosure: Homeowners are actively seeking to stop foreclosure and save their homes. As many as 1 in 10 homeowners are facing foreclosure in major cities in the United States. Even the famous actor, talk show host, and Publishers Clearing House spokesperson Ed McMahon just had his multi-million dollar mansion go into foreclosure.

So right now foreclosure is becoming a national tragedy, because everybody always told you to build wealth you need to own your own home and thousands of homeowners now facing foreclosure from that bad advice. One of the major reasons there is this foreclosure crisis right now is because of Wall Street looking to make a buck and loose loan standards practiced by mortgage companies to loan money to future home buyers.

In 2003, Wall Street rushed to find the next big thing since the dot.com collapse, they found the ripe market of mortgage brokers, so all the fund managers of the pension funds, mutual funds and other investment vehicles rush to make money from mortgage backed securities which paid higher than treasury bills. At the same time Wall Street was enjoying unregulated, creative ways to increase business the Federal Reserve Bank also dropped the interest rate to the lowest in about four years. The tumble down effect was the mortgage brokers took advantage of this rush, advertising the interest rate to home buyers and to refinance homes; and the advertising was effective because of to the lowest interest rates ever. Buyers believed they may never get the rate again in their life time and felt urgency to cash in on what seemed too good to be true. It was. The irresponsibility came when many mortgage brokers did whatever it took to put people in their homes.

Many mortgage brokers did not verify income, loaned to subprime borrowers and ignored key indicators of likely loan failure and this all set off the foreclosure crisis. Mortgage companies put in place devices like: Interest-Only Loans paying no principal and 80%/20% Loans where you have two loans totaling 100%. Interest Only Loans are loans where borrowers only paid on the interest of the loan, lowering their payment, but quite literally paying nothing toward owning their home. The 80/20 Loan meant the borrower did not have to put any money down, the entire mortgage was financed.

These are just two of the so called creative home mortgages. Now when a mortgage broker faces a foreclosure on a homeowner's property the mortgage brokers call it a write off, but a homeowner is facing a demoralizing, emotionally harsh, socially stigmatizing problem called foreclosure. What happen to the loan officer that sold the mortgage to the homeowner? He or she still keeps his or her commission from the sale and so does the mortgage broker they worked for. Their credit and reputation is fine despite their active role in making irresponsible loans. There are major mortgage brokers having problem, some on the verge of collapse, guess what they are doing right now? Begging the United States Congress to bail them out of the problem of their own creation. I find that ironic, like a child playing with a toy, then intentionally breaking it and then crying for their parents to buy a new toy after being told they have to find a way to fix the original toy. Funny thing is, many of these industry experts are trying to blame the homeowners for not staying up on their debt and paying their bills.

Right now tens of thousands of homeowners a month are trying to sell their homes because of medical problems, job loss or Adjustable Rate Mortgages coming due causing payments to double. Problem is the market is in such distress that values have hit the floor and the homeowners are forced into foreclosure because they cannot even sell their house for less than they owe due to the value dropping in some cases 30%. The mortgage industry in the rush to make money off the back of the homeowners have inflated the cost of housing so badly that homeowners owe more than the houses are worth in today's market. Everybody was looking to make money and so, quite magically, assessments, which mortgage companies paid for, pretty much always came in at the asking price or the price on a sales contract.

The assessments, the document that mortgage companies were legally required to document a house's worth, had inflated the worth of millions of homes, so the mortgage companies could get the sale and their staffs could get their commissions. Mortgage companies and their employees were making a bundle and homeowners who would not quality under traditional lending standards felt their dreams came true. Well that gravy train ended with a huge bang. Just because you're not facing foreclosure doesn't mean you're off the hook, the fall out is home improvement, college, auto and other consumer loans will be harder to obtain due to tighter standards. Businesses will have a harder time obtaining a credit, leading to more layoffs and fewer jobs. This will lead to a vicious cycle of more foreclosure and possibly a depression.