Thursday, May 3, 2012

Sub Prime Mortgages

From CBS News, August 31, 2007: "Would you like a mortgage that lends you more than the value of your house?

Would you like it structured so that your first payments are extra low?
If the mortgage weren't structured that way, would you be unable to afford the payments?
Are you convinced that real estate prices will continue to rise?
Do you have a poor credit history?

Congratulations if you answered "Yes" to most or all of those questions! You're an ideal target for a subprime mortgage lender.

Of course, there is a downside amid all the fine print, as hundreds of thousands of American consumers are now finding out. Mortgage delinquencies and foreclosures are way up. Dozens of companies that lent money to anyone with a pulse have gone belly up. And suddenly, some economists are starting to worry that the whole mess could send the U.S. economy into recession."

So, in trying to help the poor Americans to climb up the housing ladder, Fannie Mae and other large mortgage lenders no only caused many of them to lose their houses but triggered a world recession that is still with us four plus years on. Such is a prime (pun intended) example of the law of unintended consequences.

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