Consortium: Have you actually ever read a mortgage agreement? Honestly they're written in such confusing language that most homeowners don't really know what they'e getting into. Couple that with what could best be described as deceptive lending practices in which people writing out these mortgages assured homebuyers that yeah, they could keep refinancing cuz the rates would just 'stay low forever' and I feel that most of the blame lay with the lenders. You can't expect homeowners to be experts in the housing market, but you should expect lending institutions to play smart with their money.
Quite a few actually, and while they're by no means absolutely and utterly clear with a little logic and time it's not hard to work out what's going on. If you don't want to do it yourself there are groups like the citizens advice bueau who can give it a look over for free, or you could hire a lawyer to look over the contract. I'm not sure what the rates for a bsic high street US lawyer are, but probably around the $100 p/h mark (?). It wouldn't take more than a couple f hours, so we're talking $400? Now, that's a fairly large amount, but on something like a house purchase it's a small amount and very, very worth it. Even on a common sense ground, if you're earning $30k a year, but you're about to get a mortgage for a $500k house... or even a $300k house, it must seem too good to be true... which means it is.
If lenders either lied or broke the law then they should be prosecuted and possibly the home-owner given specific performance, in in that case I have no sympathy for them. However that's not what happened in the majority of cases. People wanted to live beyond their means and took a gamble that didn't pay off. Now they're suffering the consequences. On the last point, on the lenders playing smart with their money, what they were doing is basic and common buisness practice. There was a reason this was known as "subprime" lending... no-one else wanted to loan anything to these people because they were such risky clients. In the case of risky clients the two buisness basics to protect your risk are to have large security and high interest rates. Now, as its a mortgage the security will always be a charge on the house, so the interest rates had to be high (eventually). The issue was that basic buisness practice is dangerous when applied to a mortgage, but its only becoming apparent now quite how dangerous.
I think also some of the blame lies with the government. The 'every american in a home' plan only served to exacerbate the housing bubble which everyone knew couldn't last forever, but kept hoping it would.
Anyway you look at it, it's a big goddamn mess.
Agreed: pretty much any time the government attempts to intefere with the market things get worse. The buisness cycle doesn't move in convenient 4/5 year phases like politics does and no sensible politician is really going to go "listen, we need to let things suck for you for 15 years, but then everything will be sweet"... because people want improvements now.
Also, I don't see why these banks would forclose, they're going to get stuck with all this property with lowering value. If they would bend and let homeownersalter their payments to be manageable, they banks will still make money (not as much) the people will still keep their homes (overpaid for) and there would be a lot less pain and suffering all around. Personally, I'd like to see something like a government arbitration committee to look at cases and rewrite mortgages for banks that are taking bailout money so that people will keep homes, and help to ease the crisis.
But I'm no financial expert.
The issue here is that those banks are also in debt and have to pay that. Previously they either had the liquidity to do that or could sell on their debt (which is how this issue got so big to begin with). Now however, as people have been failing to make their payments they have no liquidity and no-one is going to buy toxic debt, these companies find themselves deeply in the red. If they didn't foreclose and instead lowered the repayment rates then they simply wouldn't have the money to meet these debts and would go bankrupt. So what they're desperately trying to do is foreclose and sell the houses to get some money to stay afloat. To give a very simplified example, if a bank owed 2 million, normally it would cover it through the mortgage interest payments it recieved. Now however, with those payments drying up, it no longer can. If it doesn't get some cash than it will go insolvent and be wound up by its debtors (as most companies don't have vast savings due to shareholder pressure). The only real assets it has are the charges on the home, and while they're selling them at undervalue (say 150k as opposed to 200k), it at least brings some money in quickly, where as changing repayment rates would mean it would get the money in, but over such a long time-frame that it would be wothless... a bird in the hand etc etc. Now, the cycle continues, in that the company that the bank owes also needs cash and so it demanding the bank pay it immediately... etc etc.