This is the definition of subprime, which comes from the HUD.gov website:
Subprime loans are for persons with blemished or limited credit histories.
It seems odd that if you have trouble paying your loans in the past, you are given terms more onerous, obscure and complicated to pay off new debts. Got that? Yes, I understand the concept that if a person is smart about debt, they wouldn’t get into the subprime mess in the first place. Yet, an adjustable rate that quickly jacks up monthly payments makes the probability of payment failure more likely.
Who wins by charging Americans such high rates of interest that they have to decide between eating, driving to work, and having somewhere to live? Is the policy of putting US Citizens between a rock and a hard place paying off? Apparently not, since we are entering a unique period of economic uncertainty.
How is it different? I’m no expert, but I know that people cannot escape debt like the old days. In the past, Americans could declare bankruptcy and keep the house.
Now, it’s a no go.
Why? Congress, in their eternal wisdom, who do not represent the people, but bank lobbyists, decided that bankruptcy laws were too easy. These geniuses decided to make sure that consumers will no longer easily loosen or escape their debt nooses. Fair enough, to a point.
How do I feel about the whole thing?
The government patted itself on the back about the large number of people, especially minorities, who were home owners. Historically, minorities are new home owners, have spotty credit records, and aren’t the most sophisticated in dealing with banks. Oh hell, who is?
During the rapid growth of home ownership, people were given mortgages that initially they could afford. After the interest rates started going up, their American Dream turned into a nightmare. This problem went all the way up the food chain, because several CEOs have lost their jobs. You see, those shaky subprime mortgages are grouped together and sold as collateralized mortgage obligations (CMO), etc. around the world.
Fools gold, eh?
I don’t know how much hand holding US Citizens, and others, need in order to be protected when making complex (which should be simple) financial decisions. As we can see from the trembling of world markets: if Americans stop spending, some markets in the rest of the world make no money.
There has to be a better way for people to buy a house, buy some consumer goods, and not end up in the streets after a few years. While exotic mortgages have helped people obtain the American Dream, it has also injured a great many others.
