ABUSES IN THE LOAN INDUSTRY WERE IGNORED

There were numerous situations where big lenders denied a borrower a mortgage for a conforming 30 year fix at 6.25% on full documentation, and a good credit score, only to approve the same borrower for the same loan amount on a non-conforming program at 9.125% with a 2/28 adjustable term.

There were many examples of the abuse taking place in the industry and the voices of honest brokers were drowned out. In the face of record profits, nobody cared about the medium to long-term impact. During the bonanza, President Bush announced that under his watch, home ownership in America was at a record high, but he did not have the insight, vision or sound advise from his policy advisors to sound the alarm. The housing market was like an out of control train that was bound to get wrecked. The President and his administration took credit for the boom, who is responsible for the bust?

WHEN INTEREST RATES STAND AT AN HISTORIC LOW – GET A FIXED RATE MORTGAGE

During the hay-days of easy and generous mortgages, honest mortgage brokers were not making any money - clients left my office to go across the hall, upstairs or across the street to other brokers that would put them in bad loans. Some unsuspecting clients had unscrupulous mortgage brokers that encouraged them to file false and misleading complaints against brokers who were giving sound advice. Then that same dishonest broker would put unsuspecting borrowers into bad loans, knowing that the borrower did not understand the full implication of what they were accepting.

Many of those lenders now having problems dropped their good brokers because they were not brining in the numbers. The simple fact is that house prices doubled in many hot real estate markets in a relative short period – in some cases, 2-3 years. Surely the big investment banks, Wall Street gurus, and institutional investors knew that consumer wages were not keeping pace with the appreciation in real estate value. Therefore, one didn’t need to be a genius to know what was coming.

It‘s simple - when interest rates stand at an historic low, and the discount rate is at 1% to 2.5%, GET A FIXED RATE MORTGAGE. How much lower can you expect rates to get? We are preseently at war and spending more than the treasury is taking in, setting a record high budget deficit, trade deficit and suffereing from skyrocketing oil prices. All the while the U.S. government is competing with consumers for a limited supply of available credit to fund the war in Iraq and Afghanistan. Under those circumstances, any one that understands free enterprise could forecast that rates would have to increase significantly, unless artificially held down.

Kelynem Credit Consulting has been in the business of debt management and credit building services for over 20 years. in 1991 we authored and received copyrights for two publications on managing debt and preventing foreclosures.

We offer the tools and knowledge-based solutions to consumer finance related issues, ranging from credit card management to managing and paying off hospital and doctor bills without breaking the family budget, while staying afloat financially.

COMMENTARY - AS WE SEE IT

FOR THE SECOND TIME IN AS MANY BUSH ADMINISTRATIONS, WE ARE AT WAR IN IRAQ AND THE GOVERNMENT BAILS OUT THE BANKS WHILE STRUGGLING TAX PAYERS ARE STUCK WITH THE BILL

Taxpayers who are struggling to keep a roof over their heads and facing foreclosure have been given a promise and nothing more from the Bush Administration. The administration announced a $30 billion dollar bail out of financial giant Bear Stearns, at the taxpayers’ expense. While those same taxpayers are struggling to keep their homes. It would make more sense to bailout homeowners struggling with soaring interest rate increases which are the only obstacle to them in keeping on top of their mortgage. Common sense would dictate that if homeowners get to keep their home and pay a reasonable interest rate, investment banks as Bear Stearns and mortgage lenders such as Countrywide and others would not be having the problems that they are now experiencing.

Bailing out the homeowners would serve to save Countrywide and Bear Sterns. Sure, their profit would not be as substantial, and their CEOs might lose their jobs over falling dividends. Those same investors that would be calling for the heads of those CEOs would have a much stronger investment and although their dividend span would be small to none, their overall investment would be much stronger. It would help the economy, keep home values more stable and the pension funds and other institutional investors and would not have lost billion of dollars in portfolio value.

Surely, some genius in Washington must have thought of that. When home prices were sharply increasing and rational voices such as mine warned people that it could not continue, those with similar concerns were not welcome to express their opinion.

Bear Stearns and all the mortgage lenders that are experiencing problems should be allowed to fold. When the discount rate was at 1%, those greedy con artists were offering adjustable rate mortgages to borrowers. Did they expect that interest rates would go below 1% or even negative where banks would pay them for taking a loan? It was madness. However, many less sophisticated people were caught up in the refinance game to get cash-in-hand, reduce payments and never mind about the possible consequences.