Growing a scandal

In the last couple of days, I’ve received at least 6 phone calls from mortgage companies trying to sell me a new refinance. This is a new thing. Haven’t heard from any mortgage people since I refinanced my house a couple of years ago at a nice comfy fixed rate of 5.25%. With my original mortgage holder. I haven’t applied for any credit since then. But I do have a lot of equity in my house. Are there people out there combing through public records looking for mortgage holders with equity to exploit? Because that’s what I’m getting from the phone calls. The messages on my machine tell me that I can refinance and get all the equity out of my house with really sweet repayment deals. And then they go on to say that anyone with bankruptcies or bad credit won’t have a problem getting the equity or the refinance. I have neither, but in case I did, this is supposed to be a great deal for me?

A long, long time ago, I worked in a bank. Back in those days there was a thing called protecting your portfolio. That is to say, financial institutions didn’t hand out questionable loans that carried a high probability of default. Moreover, they weren’t in the business of trying to bankrupt their potential clients with really questionable loans. That’s shabby business and it comes back to bite financial institutions in the rear.

The Bank of New England comes immediately to mind.

But that seems to be all the current rage. According to these messages, I could borrow against my equity up to the hilt. And, I presume, my mortgage payments would eventually double or more. And then what?

I read, over the weekend, that foreclosures in this neck of the woods are higher now than they have been in over a decade. That is obviously a sign of trouble. And, housing values have been falling. The market isn’t showing signs of tanking, just yet, but neither is it currently growing. It’s showing signs of a gentle drift downward.

So what happens when these questionable easy loans are made to people who can’t afford them (but perhaps can’t afford not to take the equity) and aren’t credit worthy, and they default on the loans? With housing values beginning to drop, selling a foreclosed house is quite likely not to yield enough to repay a loan on a house that is mortgaged to the max, at current inflated housing market prices. The mortgage holders would still be liable for the difference, even if they have nothing left with which to pay it. Bankruptcy appears not to be an option anymore. This is already beginning to happen.

Lending integrity is a thing of the past for some (many?) of these fly-by-night mortgage companies. At least until the next huge financial institution scandal leaves people wringing their hands wondering how such a situation could have occurred.

I am going to take a wild guess here that if the companies handing out these mortgages start foreclosing on the crappy loans they’ve made and find the market sinking beneath them, bankruptcy will be an option for them. But the fallout for the rest of us is going to be grim. These vultures need to be stopped.