Foreclosures have been one of the major causes of the recent stock market obliteration. Banks have been widely blamed for giving loans that people could not afford that allowed the borrower to pay interest only for a few years when thereafter the principal began being added increasing the monthly bill. Fannie Mae and Freddie Mac have also been a very large part of this problem.
Something that is overlooked for the most part is the fact that people are trying to live to much of a lavish lifestyle when they can't afford it. Instead of living the life they can afford many Americans use credit to buy things that they really shouldn't buy. This applies to home buying as well.
Why is it that there are so many foreclosures? People are buying houses that they really can't afford and were tricked by attractive monthly payments that were advertised for these subprime loans that they didn't fully understand before they dove right in buying expensive houses. Then when these bills increased after the principal started being figured in these people could no longer afford to pay their mortgage and therefore had to leave their homes.
The true lesson here that many Americans need to learn is to read fine print on any contract, especially on a purchase as large as a home, and to stop using credit to live beyond their means. In reality these homeowners are to blame for this housing bubble and it bursting for buying houses that they couldn't truly afford.
I totally agree with you. The added factor to this economic dowturn is the increase outsourcing of jobs overseas like india and my home country(philippines) for cheap labor.
ReplyDeleteThank you for being the first to comment and I'm glad that it is somebody who agrees with me. Outsourcing is a problem and that might be one thing that I agree with Obama on for giving tax breaks for companies who give Americans jobs rather than sending them overseas.
ReplyDeleteJason: You got it half right - people took loans they should never have gotten in the first place. Some renters are not homeowners, they need to save up a down payment first.
ReplyDeleteThe other half is the packaging of these sub-prime loans into securities (bonds) that were then sold to investors as "investment-grade" securities, when in fact, they were junk. That is criminal negligence but I don't see the bond dealers, ratings agencies and mortgage brokers going to jail or paying back the zillions in "fee income" earned off this debacle.