MILLIONS FEAR NEW “F” WORD

By Harvey Tobkes

I have heard it reported that 16 million homeowners are in arrears on their mortgage loans and live in fear of “FORECLOSURE.”

Home ownership was the bedrock of the banking business and the backbone of our strong economy that made America the richest country in the world. Today, that backbone has scoliosis and is in need of an adjustment.

Mostly I blame the banks for this debacle because their loans strayed from guidelines…based on the old-reliable 4 C’s of credit and morphed to ridiculous low or no standards at all. Just bundle that loan with others and sell the package to another financial institution.

Character: How a person has handled past debt obligations: From credit history and personal background, honesty and reliability of the borrower to pay credit debts is determined
Capacity: Means how much debt a borrower can comfortably handle. Income streams are analyzed and any legal obligations looked into, which could interfere in repayment.
Capital: Means current available assets of the borrower, such as real estate, savings or investment that could be used to repay debt if income should be unavailable.
Collateral: The lender on a mortgage loan wants to know that the property is worth enough to cover the loan.

Gradually all these proofs of credit worthiness were lowered or disappeared and unqualified buyers jumped on the opportunity to own a home they could not afford, erroneously assuring themselves that the crazy upward spiral of prices would continue and someday bring them a windfall profit and or allow them to continue to live the good lifestyle.

As always, sub prime borrowers found it easy to walk away from their mistakes as they had little or no money of their own invested.

What a fiasco! I fear that once again the people at fault in this mess will leave the dirty clean-up job to the taxpayers.