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LadyEllen -> RE: "Mortgage crisis overwhelming credit counselors" (3/23/2007 9:09:50 AM)
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Of course the people taking out crazy mortgage borrowing are responsible - and also liable. But is there not also an onus on the banks etc to lend responsibly?
Not sure about the causes of the US situation, but we have the same situation in the UK where its causes stretch back to Mrs Thatcher, who sold off much of the social housing stock in the early 1980s, making the availability of affordable homes for the poorest much less than the demand. House prices soared, until one day a run on the pound in the international markets near bankrupted the exchequer and interest rates went through the roof. Cue thousands of repossessions, massive fall in prices (50%) and a fresh round of new buyers. That was in the days of responsible lending and the defaults were the result of governmental mismanagement.
But we moved then into the 90s with house prices rising more steadily. Demand was growing and still is, but there are very few new houses being built compared to the demand, which is accelerating the rises in prices. The lenders moved in this latest period into lending that can hardly be judged prudent - instead of 3x salary, one can now get mortgages for 6x salary, simply because without this added lending, no one could afford a house, and of course everyone needs somewhere to live, and with little social housing and a rental market that is overly proscriptive as to tenants and landlords who act in a less than honourable fashion, buying is the only real option. One could easily argue, that the way the lenders have acted has contributed in no small part, to the rise of house prices generally - sellers being aware that borrowers may borrow more, and valuations being put up to accomodate this added borrowing capacity.
We are told that the economy is buoyant in the UK. But, how much of this buoyancy is the result of credit lending one wonders? Almost all of it, is the answer; whether its mortgages, loans or credit cards, the economy is now reliant on lending and the meeting of payments by borrowers. Given this, the level of borrowing is now causing the Bank of England to raise interest rates, which had during the happy times of a few years back, dropped to a record low. As the rates rise, more and more people will find they are unable to meet their payments, their homes will be repossessed and house prices will fall through the floor - leaving ongoing mortgagees not only in negative equity with regard to their home but also more interestingly, with not enough assets to cover their other borrowing either.
And then we will have a situation too, where thousands are expelled from their homes and made homeless in a country where homelessness is already a major problem. There are certainly not enough houses or apartments, or even bed and breakfast accomodations for all the existing homeless, let alone the thousands of fresh homeless we will have, who having been blacklisted for credit will not be able to rent privately either.
In my view therefore, the forthcoming bursting of the bubble over here is down to irresponsible lenders and the actions and inactions of the governments over the last twenty five odd years in selling off affordable social housing and failing to build properly for the future. Those caught in the trap must bear some responsibility of course, but what else are they to do than to play the game according to the rules set at the time by government and the banks? Do we expect them to live on the streets until the market changes, or take a perhaps foolish mortgage in hindsight, to have somewhere to live?
E
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