Friday, October 5, 2012

Predatory Lending?

Over the past 5 years the phrase "predatory lending" has been repeated on every news cast, and printed in just about every periodical in circulation. Yet, this phrase did not exist before the start of the financial crisis in 2008. Those given the dubious distinction of being predatory lender's are banking and loan institutions who knowingly steered consumer's applying for home loans into mortgages that they did not qualify for, many of which had high interest, variable rate mortgages. Variable rate mortgages are mortgages with interest rates that can be increased at the lender's discretion. This would cause the borrower's interest rate to increase thus increasing their mortgage payments. The banks, and lenders would then push it's employees to approve as many loans as possible using aggressive financing, and loose guidelines so that these mortgages could be bundled together, and sold as mortgage backed securities to investors. As a result, many American's were not able to make their mortgage payments. This is just one of a few key factors that caused the housing/credit crisis. The banks and lender's engaged in unscrupulous practices to exploit those American's who wanted nothing more than the American dream.
But the term "predatory lending" has always confused me. I understand the connotation and I understand the reference but, when I hear the word predator, I imagine an eagle swooping down on it's helpless prey, with the intention to devour it. In my vivid imagination I never picture adults with the ability to think and reason, as prey, and I don't see the image of a bank in business to make money, as a pouncing predator forcing it's intentions on a consumer.
It is our duty and responsibility as adults who have freedom of choice, to choose wisely. Blaming a "predatory lender" for a consenting adult's poor choices, is just as absurd as blaming a tobacco company for getting lung cancer after smoking for 30 years.
It's common sense and basic mathematics. If anyone, bank or otherwise offers to grant you a loan that could possibly be a burden to you or your family, it probably isn't a good idea to accept it. If you have a mortgage which requires 4 jobs between 2 people just to make a payment, that basically means that there is an overextending of your resources. This is not an ideal situation because there is too much possibility for failure when the variables involved are taken into consideration. There is an old saying, "You have to crawl before you walk." The problem is, so many of us want to jump up and run without using critical or analytical thought.
When my wife & I applied for a mortgage loan we were offered double what we were asking for, and we excited at first. The prospect of a huge home that exceeded our expectations was exciting. But when reality set in we realized that although we would be able to obtain the property, it would be a struggle to maintain it. In the end, we agreed to a home loan for half of the original amount offered to us, and we were able to purchase our home for even less. It's not our dream house but, it is the house of our dreams. All we did was the math, figuratively and literally. There have been times in my life when I have made irresponsible poorly informed decisions, but I have never blamed anyone else, or labeled myself the victim of a catch phrase.


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