Tuesday, March 24, 2009

Just a little common sense

I’ve been watching the growing mortgage crisis with awe and admiration for the consummate stupidity of the entire banking industry. If that sounds harsh, look at what they are doing.

People who were paying their mortgage on time until the adjustable rate mortgage (ARM) adjusted up now can’t pay. So rather than adjust it back, they foreclose and loose even more money by selling the house at a huge discount.

As job loss grows, the number of home owners who had been paying their mortgage and now need a quick fix can’t get bankers to work with them. All they need is a one or two or three month mortgage holiday. So allow them to skip the payment for a month or three and add those payments on the end so it’s not a 20 or 30 year mortgage, it’s a 20 or 30 year plus the extra one, two, or three month’s payments that were missed. The lender misses a very small amount of interest but they don’t have to foreclose.

How about a home owner who gets fired and takes a lower paying job because that’s all they can find? Better to cut the interest (the biggest part of your monthly payment) and keep the loan active than allow it into foreclosure.

There is an old saying - “When you are in a hole, stop digging”.

When the banks add late fees and demand an interest payment to “skip” a payment, they are digging the hole deeper and making it that much more likely that the loan will default!

Any banker that can’t see taking a $1,000 paper loss in fees or interest is so much better than taking back a house mortgaged at $250,000 and selling it at a foreclosure auction for $150,000 is a bad idea shouldn’t be allowed to walk around with out adult supervision.

Making money is better than loosing money, but when the choice is between loosing $100,000 at a foreclosure sale and loosing $1,000 in lost interest payments which would you pick?

And, are you sure that you want to trust your savings account to a banker that thinks foreclosure is better than a small loss to work out a way for the owner to keep paying?

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