Blaming the Subprime Mortgage Brokers
With the American economy now into or definitely headed into a recession, millions of people are now considering their options for filing bankruptcy and facing bank foreclosures on their homes. The mortgage mess, rising prices of food and gas, the foreclosure crisis and the sinking economy has many economists theorizing how we got into this situation, and more importantly, how we will recover.
During the recent housing market boom, credit and mortgages were easily attainable for almost everyone. People who had never purchased a home before decided to take the plunge because mortgages were available with little or no money down, even to low-income families and people with poor credit scores. The value of homes continued to soar, giving new homeowners a sense of satisfaction that even if they had gotten a bad loan, after a couple of years, the homes would be worth so much that a new and better mortgage loan would be an easy fix. After all, this is what the mortgage brokers were all but guaranteeing their customers.
There is much talk in Washington about bail-out programs to give assistance to homeowners who are in distress and facing bank foreclosures. Lawmakers have concerns about helping people who are faced with foreclosures because their adjustable rate mortgages have reset and they can no longer afford to make their mortgage payments. The foreclosure crisis is nationwide and universal, affecting people in all income brackets and nearly every neighborhood across the county. Some are concerned about the foreclosure epidemic in general, while others have reservations about saving homeowners who knowingly took the risk of a bad loan and are now paying the price from bankruptcy and foreclosure.
Because home values have fallen and continue to sink and the credit market has tightened up, many people who have adjustable rate mortgages are unable to refinance according to the plan the mortgage brokers laid out and assured them would work out perfectly. This situation has many questioning whether or not the people who knowingly took these risky loans deserve help. It is hard to tell whether or not they were drawn in with false promises from mortgage brokers and are victims of the process or if they are just financially reckless people who took a gamble and lost.
Bankruptcy and foreclosure lawyers feel that there is a bit of blame on both sides of the equation. Homeowners who would not have been able to purchase homes without a subprime mortgage loan got what they wanted, at least initially. Mortgage brokers were in their heyday while the housing market was soaring and they got their financial satisfaction out of the deals as well. It was a win-win situation as long as the housing and credit markets were in good shape. Brokers had no way of knowing that the bottom would fall out - or did they? It's hard to imagine wide open housing and credit markets lasting forever, and mortgage brokers took full advantage of the situation while the markets were ripe.
Subprime mortgage brokers absolutely took advantage of the more vulnerable borrowers. Rather than finding consumers with few options the best mortgage loan available, according to a report by the Washington Monthly, The Center for Responsible Lending found that subprime borrowers who got their mortgage loans through mortgage brokers between 2004 and 2006 paid substantially more than those who obtained their mortgage loans through banks and credit unions.
So people with weaker credit histories and lots of consumer debt had few options to get mortgage loans during the housing market boom, but they took chances while the market was strong, often because they listened to subprime mortgage brokers' assurances that everything would be fine. Well now it's not fine. Many subprime mortgage brokers paid their own price and are now out of business or unemployed, perhaps facing bankruptcy and foreclosure crises of their own.
