From the Star Telegram
Avoiding mortgage crisis is a priority
When the real-estate industry made it easy to borrow a lot of money, it also made it easy for people to get into financial trouble. Which is exactly what’s happening, as foreclosures are surging across the country.
Now we’ll see whether the key players can head off a crisis.
Lenders have to help distressed borrowers find a way to dig out, and all the participants, including home builders, have to reform their business — or someone else will do it for them.
The pressure is already building. In a Senate hearing last week, regulators criticized the recent wave of exotic loans that are squeezing many homeowners and will soon hit thousands more.
There are calls for loan restrictions, more disclosure and more education. Lenders are talking about “foreclosure prevention” — ways to give homeowners more time to make payments or rework their debts. Hot lines have been set up to counsel strapped consumers.
Some people are even questioning the sanctity of homeownership, which is the equivalent of economic blasphemy.
Common sense tells us that owning a home isn’t for everyone, but if that notion gains wider acceptance, look out.
Real estate and construction are pillars of the economy, and for years, we’ve heard only about the great wealth they create. Now there are plenty of stories about folks getting in over their heads and losing everything.
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Not long ago, loan standards for mortgages were tougher, and that served as a screening mechanism. People who weren’t ready for the financial burden often couldn’t qualify for financing, or they had to settle for less house.But everybody, especially politicians, loves to promote homeownership, and many buyers simply needed a chance. So Congress urged lenders to get creative and find ways to get more low-income buyers into the game.
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So why does the industry sell this kind of financing to questionable candidates? Or push loans that require no down payments and no escrow? Probably because they allow buyers to qualify for bigger mortgages and bigger homes, which means more commissions for everybody.