Mortgage Lenders and Politicians, Not Consumers, Are to Blame for Current Crisis
by As a real estate agent in Houston, Texas, I directly observed the results of the subprime lending crash. In order to understand the anger on the part of the victims, the shocking destruction of foreclosed upon property, and why the majority of foreclosures appeared in certain demographic areas, I began researching the causes of the crash. What I found was surprising. It is important for all consumers to understand what has happened so that they can better understand what the future might hold.
Consumers should not internalize the blame that has been cast in their direction. Headlines and talking heads chide consumers for over-spending, over-using credit cards and living beyond their means. But, you need to know that this is not the whole truth. The current state of the economy was engineered by a handful of mortgage lenders who pushed a Federal law through that “deregulated” the lending industry. This act overrode individual state laws against lenders charging usurious interest rates, which vary from state to state.
In the middle ages, usury was defined as any interest on a loan. By modern definition it is any interest that is regarded as excessive. This amount is determined by individual states in the U.S.
In 1980, a scheme was devised to find a loophole to all of these laws by the use of adjustable rate mortgages (ARM) and hefty pre-payment penalties on loans issued to homeowners. ARMs were issued to people who would not have qualified for conventional loans from banks. In many cases, the people who received the loans did not understand the terms of the loan. Some claim that they were intentionally misled by those who issued them.
This February 2006 study by Chomsisengphet and Pennington-Cross, published by The Federal Reserve Bank of St. Louis Review outlines the effects of the subprime mortgage market and its effects on the economy. ARMs are a means to charge obscenely usurious rates and eventually confiscate the property of those who are victims of this scheme.
The current economic crisis was engineered nearly thirty years ago. People were encouraged to borrow money and lenders offered loans to people of sums much larger than they knew they could afford. Even President George W. Bush encouraged people to spend after the attacks of September 11, 2001, which were also engineered in Washington, D.C. as evidenced by this video on youtube.com entitled “Alex Jones Predicts 911,” from July of 2001 in which a news commentator attempts to alert the public. You may recall that the World Trade Center was home to many financial firms and businesses tied directly to Wall Street.
The main targets for ARMs have been minorities, particularly African-Americans. For example, in Houston, Texas most of the foreclosures are concentrated in traditionally African-American neighborhoods. These are older homes in mature, established neighborhoods. These were the first mortgages to fall when the mortgage rates on the ARMs were adjusted upwards. The victims found that suddenly their interest rates had tripled and they could not make the payments. To further complicate matters, they were not allowed to pay the mortgage off without a substantial pre-payment penalty. It would seem that the objective of the banks, in spite of protests to the contrary, was to confiscate the victims’ property.
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