The Mortgage Crises

The real reason behind the mortgage crises is the inflexibility of the lending institutions. Let's say one is paying $1000 a month on a mortgage, with $950 of that going to interest. The payments are made on time, including an addittional $300 to escrow. Three years later the payment bumps up to $1300 and six months after that it goes up to $1500. Now the house note is $1800, including escrow. The amount going to principal is still the same - $50.00. That is a deal that does not make sense to the borrower. Initially, the borrower - someone with perfect credit and documentation of sufficient income to pay the original note - was sold on this ARM by a broker. The borrower was assured that he was getting a great deal. The house was purchased with no down payment, but there were closing expenses to the borrower of $8000. The broker, title attorney, title company and the lender all got a piece of that pie. During the initial three years, the borrower paid the bank $36000.00 but the balance on the loan only went down by a few thousand dollars. Now, after the loan has adjusted up, the borrower makes another year of $1500 a month payments. So by now the bank has gotten $54,000 plus the $8000 for closing costs. They still have a mortgage on the house. The borrower suddenly finds himself paying $5 for a gallon of milk and $3.70 for a gallon of gasoline. He realizes that he is getting screwed by the bank and can no longer afford to pay $1800 a month on a mortgage.
So the borrower, calls the bank and says, "I can't go on like this, you're screwing me". Of course, the lender is not going to drop one percentage point, much less 2 or 3 in order to keep the customer and obviate foreclosure. So, they go and foreclose and now they still have a piece of real estate. The real estate is not completely worthless. But somehow, the lender declares a total loss and the government steps in to bail them out.
A much better solution would have been for the lender to drop a couple of points off the interest rate. Or for Congress to amend the bankruptcy laws and allow cosumers going into Chapter 13, to restructure the debt in a way that the bank would still profit, get paid, no foreclosure, etc. But we don't live in a sensible world!

Multiple Personalities - That's Me!

Found that pic on the right while evacuating for Gustav. The pic is from when we got back from Katrina. Our house wasn't flooded, just some trees and fences down. Life in New Orleans since 1965 is punctuated by Hurricanes, evacuations, and floods. This last evacuation, for Gustav, I even thought of leaving for good. Maybe move to Ashville, NC a city on top of some most livable place to live list.

But here's my revelation.
It takes an adaptation.
A new way of life,
featuring evacuations,
that are nothing but vacations!

It's easy to rhyme words that end in "ion", so I could not resist it. But, I will make this an interesting blog. Next entry features a little biographical background, then my favorite topics - politics, cooking, religion, and whatever is on my mind. Today's thought is that many times when I tell people stories about my life, they don't believe me. The problem is that I know that I'm telling the truth. It's just that my life is so different that people can't believe that these things actually happen to me. Have you ever had that happen to you? When you know you are telling the truth but someone thinks you are lying? Let me know. Valla Con Dios.