Monday, April 14, 2008

The Money Mess

I watch the ads for instant loans (Cash call and the like) and I wonder who is using them. The rate is a Mafia-like 99.25%. I thought we had laws against predatory lenders. Or is that considered a fair rate of return? Credit cards are bad enough with the 30% they charge some customers, but this is triple that usurious rate.
I realize they claim the rates are valid because the individuals are credit risks, but if they are that bad a risk, they shouldn’t get any loan at all, let alone one that is so high it almost guarantees that the borrower will default.

I’ve read a lot of the stories about people defaulting on their mortgages. Many are quick to point out that the reason people over extend themselves is greed, wanting it all at once--instant gratification gone wild. Certainly that is a lot of it, but it should be pointed out that in many cases, buyers were assured that before the ARM became too expensive, the buyer could convert from the ridiculously low teaser rate into a regular mortgage. So, who’s at fault? Do we blame the person who tried to make it work, or the lender lying to make the deal? Seems to be a combination of the 2. Couple that with plunging housing prices, and that makes it nearly impossible to get out of a house with a mortgage that is strangling one’s budget.

The folks I feel the most empathy for is the homeowners who borrowed to either make needed repairs, or to pay medical bills or some other unusual expenses. They tried to do the right thing, and are getting punished for it. One of the biggest problems with government intervention is that it either becomes too onerous, or it will exclude those who are normally responsible and truly need the help.

What is the happy medium?



Kate said...

Good post, Joe. The housing question has almost gone completely in the other direction now. I listened to an economist tonight say that so many mortgages are being defaulted on that many banks have decided not do loans for the immediate future, which of course adds to the market woes (more money in the pockets of individuals = more spending all around).

So, instead of being rewarded for waiting to buy a house, will we have a hard time getting a mortgage at a reasonable interest rate? You just can't win.

And I love that picture.