Who's Looking Out For Who?

http://money.cnn.com/2007/11/29/real_estate/foreclosure_activity/index.htm?postversion=2007112908

This story is another example of how the banking system became greedy. Instead of looking to protect depositor’s funds over the long term, adjustable rate mortgages were handed out like candy on Halloween.

The lack of safeguards, which would have avoided this mortgage mess, the rising cases of mortgage fraud and the every increasing number of foreclosures is now quite apparent. The big picture is not pretty. The ripple effect of the anemic real estate market does not bode well for the general economy. There’s a direct correlation between rising foreclosures and talk about the economy going into a recession.

This mess could have easily been avoided if the banking system showed some self-restraint.

Stuck In Reverse?

It was announced today that the nation’s big financial institutions are working with the Bush administration to freeze subprime rates to slow the foreclosure rates.

(See - http://www.portfolio.com/news-markets/top-5/2007/11/30/A-Subprime-Freeze)

The proposal is an attempt to allow some, as yet uncalculated number of homeowners to temporarily avoid mortgage interest rate re-setting and foreclosure by having additional time to seek other reasonable financing – if they qualify.

If the proposal is enacted it will, in the short term, slow the number of foreclosures. How it will play out in the long term depends if homeowners with adjustable rate mortgages can convert to fix rate mortgages.

Many of the homeowners facing potential foreclosure may not qualify for permanent traditional financing and those that used home equity loans to invest in second properties may be unable to re-finance may possibly lose both their primary residence as well as the investment property.