Credit a Problem? Not with Unscrupulous Lenders

Do you live in the United States?
Does your heart beat 30+ times a minute?

If you answered YES to the above questions, you could be able to qualify for a subprime mortgage, the very same mortgages blamed for the 2007 housing "crisis." Of course, that may mean nothing to you, but such loans are blamed for the recent spike in sales plummets, defaults and foreclosures. Many people are threatened with repossession as adjustable-rate mortgages reset, leading many analysts to ask "What’s next?"

Since early 2006, The Mortgage Lender Implode-O-Meter has been rapidly rising, which reflects the increasing number of major US mortgage lenders "imploding" as more and more companies are forced to deal with decaying household finances. Depending on a person's credit score, he may qualify for mortgages of a certain rank. B-paper loans, also known as subprime loans, are offered to homebuyers who's credit score are below 620 (which is not sufficient for an A-paper loan). Although B-paper loans do not counterbalance the problem of deficient credit histories, their rates are often higher and they are considered risky for both the lender and the borrower. Check out my self-proclaimed "unscrupulous lender equation" that I believe is responsible for our housing recession:

The First Law of Unscrupulous Loaning:

High interest rates + Bad credit history + Borrowers of dubious financial security = YOUR SCREWED

Along with your lenders and the housing economy as well.

However, many mortgage companies are also accused of predatory lending techniques. Predatory lending consists of companies offering loans to individuals who they know do not qualify. Obviously, these borrowers could never pay back their mortgages, which allows predatory companies to take advantage of the rising number of defaults, foreclosures and repossessions in the United States.

But what does this portray about the economy?

The US housing bubble blames subprime and adjustable rate mortgages for its demise. The monthly interest rate increase for these mortgages are based on several different indexes. In March 2007, the subprime loaning market was valued at an outstanding $1.3 trillion, but by June, many borrowers were unable make their mortgage payments. Months later, the economy experienced a ripple effect from the burgeoning housing collapse: property values declined and people lost faith in our debt-based monetary system. The second law of unscrupulous loaning can be summed up as followed:

The Second Law of Unscrupulous Loaning:

Poor judgment + Dodgy mortgage incentives + Increasing mortgage rates = HOUSING MARKET COLLAPSE

The effects of the financial crisis extend far beyond private foreclosure; it also affects banks, lending companies and investors, problems that I shall address later.

-- Dr.Econ