The financially inept, aka "morons" and "liars" need to take some responsibility for their prior actions resulting in their current dire financial predicament. If I get fat and die from eating too many greasy burgers, should I blame McDonald's for tempting me with their unduly cheap double cheeseburgers for a buck?? I think not!!!
Defaults exposing truth of "liar's loans"
By E. Scott Reckard
Los Angeles Times
The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans, adjustable-rate mortgages that allow borrowers to pay so little every month that their loan balances rise rather than fall, sometimes sharply.
Numbers from industry trackers suggest that these borrowers — most of whom boast respectable, often top-tier credit scores and appear to have substantial incomes and home equity — are starting to create a second tide of defaults in addition to the subprime-loan meltdown.
Countrywide Financial, the top option ARM lender, will be hit hard. Already reeling from the subprime mess, Countrywide was rescued from possible bankruptcy last week by Bank of America, which agreed to acquire it for about $4 billion.
The option ARM trouble stems from the loose lending practices that inundated the subprime business. Loans often were granted on the basis of stated income, not proof of a borrower's income, giving rise to their nickname, "liar's loans."
"This is not a subprime crisis. This is a stated-income crisis," said Robert Simpson, chief executive of Investors Mortgage Asset Recovery in Irvine, Calif., which works with lenders, insurers and investors to recover losses related to mortgage fraud.
Option ARMs present borrowers with a choice every month: Pay the interest due and some of the principal; pay interest only, leaving the loan balance untouched; or pay less than the interest due, making the loan balance rise.
After a specified time, typically five years, the options disappear and regular payment obligations kick in, often at a level two or more times the initial minimum.
This jolt can occur after only three years if the borrower has been making the lowest payments and the balance rises high enough. |
