It does not take much attention focused at the media to see that our great nation is struggling economically. One of the major contributors to this current economic meltdown is the rapid increase in foreclosures across the country. The country’s immense housing crisis can be addressed by referring to not only the accumulating irresponsibility of the individual American loan borrower, but also the growth of greed at the corporate level which led to the financial market’s negligence. To stop the spread of this issue we should look at closer government watch of the market and specifically focus on consumer education.
What is foreclosure? Well it is actually a simple concept: foreclosure occurs when people default on their mortgage. Say a person goes into a brokerage firm with intent to buy a home. Unfortunately the person is not capable of paying off the home in one enormous payment so he or she ends up buying a mortgage. A mortgage is payments divided up over a period of time with some interest rate on them. Instead of waiting around and simply collecting interest, the firm passes on the mortgage to an interested bank. Then the bank sells the mortgage to the stock market so investors can have a field day. This quick pass off of such an important and delicate subject leads to a great deal of negligence. It gets even worse when the mortgages are collected in one big money making pile at Wall Street. Then no one pays attention to the possible consequences that can occur. Such consequences include how the original borrower’s income will not be able to keep up with rising prices in the market and the chaos that results when big financial firms loosen money lending requirements for the borrower to expand their market.
As one gets richer one only tries to open more pathways to get even richer. In the housing market these pathways were opened by such things as the SIVA (stated income, verified assets) loans, then NIVA (no income, verified assets) loans, and eventually a combination of the two known as NINA (no income, no assets) loans. This degeneration of restriction on giving out loans created an environment where lenders were no longer interested in income or assets of clients, just a credit score. This allowed for nearly any yahoo to be eligible for loans. It would be as if we lowered the driving age to nine so that the auto industry could increase its sales; any sane person can see the possible horrors that could occur.
When individuals request a loan to purchase a home they sometimes do so without a good strategy. Moving forward with such complex and shortsighted decisions without any financial planning can result in catastrophe for these people. Say average Joe has just graduated from college and has worked a couple of years. He believes he is now ready to buy a home. Without any experience in the matter he looks for guidance from a financial advisor, for example his banker, who has his or her own industry’s best interests in...