Housing Forclosures

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The housing market takes a down turn and some people are facing forclosuer. JohnEdwards wants the government to step in and bail out the sub prime lenders. The Hedge Fund he worked for made a killing in the sub prime market and he made a small fortune working for them, now he wants us to bail them out. To understand the Sub Prime Market you need to know how it works. There are two types of loans that are made by the sub prime lenders. The first is a very low intrest loan Ajustable Rate Mortgage (ARM) that can be raised after a set time. Most will give you the lower rate for three years and limit the increase each year to a maximum interest rated determined at the time of the loan. For example you could borrow $100,000.00 at 4.5% interest for the first three years and then the interest could increase by 1 to 3% a year after that to a maximum interest of 18%. The other type of loan is to someone who has less that good credit. These people are considered credit risks because of bankruptcy, debt to income, or someone who has worked at a job for less than two years and do not have a down payment for the house. The sub prime lender will loan you the money for the mortgage and the downpayment but will charge a higher interest rate and/or add points (money added to the loan to reduce the lenders risk) to the loan. The hope is that the housing market will continue to grow and your house will build equity and not need the second mortgage to act as a down payment. If the housing market takes a down trun the ARM will increase the interest and your monthly payment. In the case of the second type the leander will want you to increase your payment to make sure your mortgage is not greater than the value of your house. What some politicans want is to bail out those who bought more house than they could afford and now can not make the payments and expect you and me to make the payments for them. The lenders want to be assured that if the person can not make the payments that the government (using our money) will make the payments. People need to take responsiblity for their obligations. The agreed to pay whenthey took out the loan and if they get forclosed on I should not have to bail them out and pay higher taxes too.