I've read two articles in the last week about the "mortgage crisis" currently underway in the U.S. In the most recent article, from CBC News, they cover it from the Canadian perspective: could it happen here?
The U.S. turmoil stems from a large number of Americans being enticed into signing up for "subprime mortgages" where the payments required in the first year or two are substantially lowering than in subsequent years, often combined with a floating rate. This means that people start off thinking they can afford their house - and more! - only to have reality crash down on them twelve to twenty-four months later, including the possibility of a mortgage rate double what they'd gotten used to. From what I've read, some people agree to such a dangerous setup out of ignorance - they don't understand that the payments are going to go up because they didn't pay attention or just didn't comprehend what they were being told - while others are seduced by the prospect of seeing ever-increasing values for their home such that they could re-finance every few years and never be in the hole. I personally can't imagine taking risks like that, but then again my only mortgage experiences have involved paying two of them off early, not having my home foreclosed on! Several hundred thousand Americans have lost their houses through foreclosure recently, and hence the "crisis" label.
As tempted as I am to say that this is just another case of people trying to live beyond their means, it sure seems as if there's more to it than that. It sounds like these "subprime lenders" targetted people who they believed wouldn't be able to fully grasp the risks they were taking, such as immigrants or the elderly. That's more than just instant gratification gone bad; that's unethical greed at work. I guess in the States anything goes; I was happy to read that Canada has checks and balances in place to make it less of a problem here (or maybe Canadians are just better at reading the fine print?)
Stories like this do nothing but confirm my belief that debt is evil!
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3 comments:
If you can't afford a 30-year fixed mortgage, you can't afford a house.
As for America, and loans, the states in closer to pure capitalism than Canada… so we’re more on our own here. They only people getting a break are uber rich and business that get that “corporate welfare.” Through Tax cuts.
I think we could easily end up in a depression / recession again with 18% interest rates....wouldn't that be interesting? What would it take? A bit more war waged by the USA with big earthquake or other natural disaster? Or are we economically secure enough with all the central bank checks and balances now days? Have big governments learnt from previous experiences?
If there's any justice in this, its that many of the sub-prime lenders are facing bankruptcy.
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