Don't Count On A Clean Slate

[Jun 10, 2008.]

It is now agreed upon that the sub prime mortgage crises was the first to fall which then snow balled to other markets and is no effecting borrowers, home owners, lenders, banks, and the American population at large. The fault of the collapse lie with plenty of people including those who participated in predatory lending practices, those who took out the mortgages and everyone else who took out loans and credit cards.

The result of this collapse are lost homes and ruined credit which many see as unfair given the fact that it all started with the sub prime mortgage holders.

The sub prime mortgages were generally given to low income families or those with already bad credit that would have otherwise been unable to buy a home. These mortgages used an adjustable rate mortgage which appeared attractive at first but when that rate reset many families found that they were unable to pay. With those payments going delinquent homes went into foreclosure. The perception is that those people were duped into believing that the agreement they entered into was safe and involved little risk. In effect, these families were the prey to those predatory lenders.

A new movement among law makers is to provide those victims with a clean slate.  That way the credit of these victims will be repaired and, in essence, they can start fresh. This looks good in theory.

Pennsylvania Governor Ed Rendell supports this action believing that these home owners should have their credit protected. He defends this belief by stating that protecting credit ratings would go towards only those who were tricked into agreeing to a mortgage that they could not realistically keep up with. “This is for people who were legitimately duped by unscrupulous people.”

While such efforts would help out countless home owners, it is just not practical. There are too many who are voluntarily walking away from their homes and who knew too well the risk they were taking. So distinguishing from these people to those that were truly unable to realize what they were getting into would be impossible.

It is a good thought though, but for the moment, home owners are masters of their own fate and responsible for the foreclosures.