As if the “sub-prime” meltdown hasn’t already caused enough damage in the housing market and the economy, there is another wave that is going to hit. This wave will be larger than the sub-prime meltdown. It should have been reported by the mainstream media years ago but just now seems to be percolating up to the surface. The chart below from Credit Suisse shows the tidal wave of junk loans set to reset in the next few years.
The first round of mortgage troubles consisted of loans made to people who has less than perfect credit. Thee people often had incomes, took out adjustable rate loans that made payments affordable with teaser rates. The next batch of loans was often given to people with good to excellent credit. These were known as Alt-A and option ARM loans. These were the “investors” who “bought” multiple homes, often had no experience in real estate and no business investing in it.
Alt-A loans are loans that were given to people who never had to show or prove their income or ability to pay for the loan. These were also known as liar loans.
Option ARMs are home loans where the consumer gets a rate on the loan that starts out low and can also choose how much they want to pay on the loan each month. Over time, the balance of the loan goes up even though a person is making payments on the loan. This is known as negative amortization.
CBS News 60 minutes program finally did a story on this situation. The video is below:
There are so many people at fault for this whole mess. The banks and mortgage brokers should have verified that people would have a good chance of paying back the loans they made by verifying income. Just because someone has great credit doesn’t mean they have the means to pay back a loan. The people interviewed for this story obviously took no responsibility for anything they bought or signed. These home owners don’t even seem to care or seem to feel that they should take responsibility for their actions. They deserve to lose their homes and the US Treasury, the American tax payer should let the majority of these people who “invested” lose their homes and go into foreclosure. The banking regulators never should have let this situation get out of control in the first place. If people can’t read contracts, can’t take responsibility for contracts they sign and somehow think they deserve to live in a home that costs half a million dollars when they make $50,000 a year, then they deserve to lose.
On the version that aired on TV, there was an acupuncturist interviewed for the story. She bought at least 5 properties, didn’t read any of the docs when buying or financing her “investment” properties and doesn’t really seem to be too concerned about it. Poor woman has or will have to sell them all at a loss. Whatever the US govt decides to do about this to prevent a total meltdown, they need to let irresponsible behavior like this get punished and these “investors” pay for their mistakes, negligence and the fraud in which many participated.