The Mortgage Crisis – Who Is to Blame, Why it Happened

We are in the midst of the worse mortgage and foreclosure crisis ever seen in the United States. There are areas of towns that are almost all foreclosed homes.

So, who’s fault is it? Is there one group that deserves more blame then the other?

First we have to discover at what the main cause of this pickle really is. Sub prime mortgages.

Mortgage brokers were making a killing. They produce money whether they gave mortgages to people with 720 credit scores or people with 500 credit scores. As long as the mortgages were accepted they received the same commission on the contract.

Thus they gave people they knew could not afford the mortgage the loan. On the other side though, these people should have read the contract and known what they were getting themselves into. Many people with unstable jobs, minute money in the bank, and a salary in itself barely able to camouflage monthly mortgage payments, peaceful went through with the loan contracts. Even though both parties could be at fault here, it was more of an ignorance to the possible future market conditions that led to both parties decision making.

You glance, the brokers as well as the borrowers figured that home prices would continue to go up in value. This means they could ticket variable interest rate mortgages, that reset at a remarkable higher rate in the future. Both the lenders and borrowers figured that the home tag increase would simply allow the borrowers to refinance the loan at a lower rate after the home designate increased, giving the borrower equity in the home while also allowing them to lock in a lower rate in the future.

Unfortunately the opposite occurred and home prices tumbled. With mortgages higher than the value of the underlying assets, the homes, no bank was crazy enough to refinance homes for the borrowers, thus making the borrowers conclude in the unique loan terms. Because of this their loans reset at a higher rate since they were variable contracts.

considerable of the blame simply falls on the regulators interested. There should have been more strict rules and regulation in region to protect the borrowers. Variable rate mortgages should be outlawed in my belief, as they are usually in status so that lenders can lull borrowers into a counterfeit sense of security. If you are applying for a mortgage, be determined to read the contract carefully, and have a lawyer justify it to you before signing any papers.