Sub-prime Carnage

Like stealing candy from a baby. They don’t come right out and say it, but that’s essentially what you keep hearing from executives in the sub-prime lending business. “It was such easy money.” “The money was just rolling in.” The employees said, “We were paid so well,” as they pack their desk belongings into boxes. Ok, let’s see how this works. Lender gives money to people with risky credit in order to buy a house. Those people can’t make the payments and the loan goes into default. Lender suffers. Companies close. Shocking!

It used to be when you purchased a home, you saved for years. You put down 20% and also had money set aside for closing costs. Then home prices soared. It was pretty hard to come up with 20%, so lenders began to lower the down payment amount. That wasn’t so bad; you still had to endure a rigorous review of your financial situation. But then the lenders took it a step farther and cut out the down payment all together. They wrapped closing costs into the loan. You could get a home for nothing down.

But wait, bad credit? No problem, they’ll still get you a loan. Can’t really afford that monthly payment? We’ll put you in a low rate mortgage that will adjust later. Don’t worry, that’s three years from now. And really, how high can that rate adjust? It turns out – pretty high.

Monthly mortgage payments started to go up hundreds of dollars a month. Many of these customers were not in any position to be homeowners. They weren’t prepared for high utilities and home repair costs. Budget breakers for even people with good financial standing.

But wait, where are the lenders they handed out these loans like candy? Most cashed out. They sold their stock and ran for the hills.

Wall Street began to turn their backs to their once profitable customers. They quit backing these sub-prime lenders once it became clear these loans were going belly up.

Who’s left holding the empty bag? Consumers who now have a foreclosure sign stamped on their credit records. They were preyed upon like a pedophile preys on children.