Selling Mortgages Like Credit Cards
Families used to spend years saving up enough money to purchase a home in the United States. Only buyers with a 10% down payment and an excellent credit rating qualified. But in the last decade or so, aggressive financial institutions masquerading as banks began peddling home loans like ice cream cones. And former lobbyists now serving as public regulators encouraged the risky lending practices.
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Apparently modern day lenders figured that with property values on the rise, they could always recoup their losses from foreclosures by reselling homes at a profit. Besides, by bundling packages of overvalued loans together and selling them to investors, these lenders were able to shift the risk to others. Borrowers played an increasingly minor role in this high stakes game.
It seems that bankers and regulators are only now coming to realize what prudent lenders have known for centuries. The borrower’s creditworthiness is a critical component of determining whether a loan will ever be repaid. Receiving a $5000 line of credit and a piece of plastic is much different than taking ownership of improved real property and a 30 year loan.
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In the days of easy credit home loans, borrowers moved in without putting any of their own capital at risk. Once the low monthly payments on their adjustable rate mortgages expired, these nominal homeowners simply allowed the bank to foreclose before moving on to the next house. New homes have turned into costly rentals. Home ownership should be a privilege, not a right.
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