Prime Borrowers Foreclosing at a Higher Rate than Subprime Borrowers
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The Hope Now coalition released information yesterday that finds prime foreclosure starts have finally moved ahead of subprime foreclosure starts for the first time since the industry coalition began (Hope Now originated last July). And, likely, for the first time in a much longer timeframe, according to HousingWire.com.
Since the media's attention has recently been focused squarely on the Democratic Convention, Republicans' reactions to it, and the upcoming Republican Convention, most housing news (good or bad; and most of it's been bad) has gone unnoticed.
Prime borrowers do have the potential of being helped by the housing rescue bill that was passed last month, but the problem is that some of these borrowers were put into "creative mortgages" like option ARM loans with teaser interest rate payment options, and those loans have been more difficult to reform under new lending rules. (Plus, lenders don't want to modify the loans quite yet; they're still hoping they won't have to absorb such large losses that they technically brought on themselves when they decided to recklessly flood the marketplace with so many porous loans.) It's also unfortunate that prime borrowers who were sold "creative mortgages," were largely unaware that throughout the promissory notes, especially in states like Arizona, California, and Florida, were several TILA violations.
Bank executives have already been beating the drum that evidence of prime borrowers going into foreclosure shows that fiscally smart borrowers tried to manipulate the system, but if one is to believe that logic 1. It's a swipe at subprime borrowers (It assumes they're not intelligent) 2. Excuses lenders of taking advantage of any and all borrowers and 3. Assumes that TILA violations did not occur or, if they did, it was in such minuscule numbers.
The point is that option ARM loans were so cunningly crafted, and were promoted vigorously through print, television and mail advertising, that borrowers with good credit and bad credit, found themselves facing lenders whose best interests were in their own short-term profit and had such a myopic view of what economic hardships could precipitate throughout the country via irresponsible lending, that it was an unfair fight for any potential homeowner from the moment Phil Gramm was able to slide his Future Commodity Modernization Act of 2000 into law.
Bear Stearns, Countrywide, IndyMac and dozens of other banks are proof that the lending industry not only loaned money irreverently and had no concern for a borrowers ability to repay the loan, but that almost all of the lenders and Wall Street enablers were also willing to eat their own.