We want to blame the foreclosures on someone. We blame sub-prime lenders. The lenders definitely played a role in this fiasco. They wrote sub-prime loans with huge interest rates for people who could not pay them back. Mortgage fraud also played a role, Minnesota ranks 8th in the nation for mortgage fraud and people are in jail because of it.
Many of the people who used the sub-prime loans to buy homes wanted a home worse than anything. It is the American dream, and so they signed the papers.
During the re-finance craze I received phone calls, email, mail and post cards inviting me to refinance my home and borrow an additional 100K or so against it. I remember one solicitation offering to lend us 130% of the value of our home.
On the radio, and on television, and on the Internet and in the mail and in the newspapers and in magazines and everywhere all day long the message is borrow, borrow, borrow , borrow. It has been that way for years. I go to the local Sears store, and find a jacket on sale, and decide to buy it because I am cold. They offer me a discount on it if I will open a Sears charge and put the purchase on my new card. They not only want me to use credit for something that I planned to pay cash for, but they want me to open a new credit line too. They will make more money by getting me to use the credit card than they will by selling me the jacket.
Some stores have people right near the front door trying to get customers to sign up for a credit card as soon as I walk in the door. I have one credit card for personal use and another for business. I get checks in the mail from the credit card companies begging me to write checks for anything I want and the charges will just go on my card at a special interest rate. All day every day I am given numerous opportunities to borrow money.
It really works too because we borrow and borrow and borrow and borrow. During the refinance boom people took money out and bought cars, vacations, real estate and even college educations. Easy to do. As a nation American consumers have reached $2.46 Trillion in installment debt, not including mortgage debt as of the end of June 2007. Honestly I don’t even understand a number that big.
According to the federal reserve Consumer credit increased at an annual rate of 5-1/4 percent in the third quarter of 2007. In September, consumer credit increased at an annual rate of 1-3/4 percent.
So when it comes time to blame someone who do we blame for the mess we are in? Every time a consumer gets a loan he or she signs some papers. Those papers contain a great deal of information about payments, interest rates, terms and what happens if payments are not made every month. I say the consumer has some responsibility.
But, and I always have to throw those in. I know people who are not very savvy when it comes to using credit. They want what they can not afford because they saw it on TV, heard it on the radio, saw it on the Internet, received a post card advertising it and on and on it goes. So they borrow money.
Some were taken advantage of and I have met people like that. I hear their story and I understand how they got in the mess they are in and my heart goes out to them. I hear two or three sad stories every week from people who are in various stages of foreclosure. My husband can usually hear my half of the conversation when he is near my office and he knows how empathetic I am and how hard it is to listen to home owners, who are about to lose their homes.
Is there someone we can blame for all of the foreclosures? If there is I would like to know who to blame.