The mortgage sub-prime situation is this different or about the same. I heard today that in some areas of California where a large population of illegal immigrants live that over 25% of the subprime paper involves illegal immigrant underpayment or foreclosure proceedings. One may consider this to be the problem but the other 75% is still there so the problem would still exist if the 25% illegal immigrant portion did not exist. So I will be discounting the 25% as not being the cause. The illegal immigrants would have been encouraged and not discouraged in getting a mortgage. The legislation is not the fault of the illegal immigrant but the shame, shame of the legislature and the mortgage industry. Yes, part of the problem but not the cause.
There has to be some other portion of the macro economy which is the cause. Credit card interest rates, adjustable rate mortgages, no income verification, unethical mortgage lending practices, fraud, high interest rates in comparison to levels of income, credit scores, etc. Yes, all of the above.
One thing I see as a cause is the change in legislation two years ago. The bankruptcy laws were levied at individuals for payment of credit card debt for a 5 year period of time. In the meantime prior to bankruptcy credit card interest rates were increased substantially from a maybe normal 8 – 15% interest rate to a 29.9% interest rate if another credit card was missed. The missed payment could have been from a credit card in dispute or a mortgage which was a little bit late or from a credit card companies policy of processing incoming mail at a snails pace so late fees could be charged. Disputes from another credit card thus would not be allowed in this situation whereas prior to this legislation they could be disputed and non-payment would be allowed. Double jeopardy thus was allowed to the punishment of the consumer.
No, I would not say that God was responsible for creating the mortgage industry or credit card issuer meltdown. It is either as a result of unethical power brokers in business and the mortgage and credit card industry tied with the legislative greed of the Congressional Leaders and Senators of the elected official of the United States.
Should anyone have warned of this poor legislation. Keep your ears tuned to the news media for a completely biased report on what is and has happened during this Presidential Campaign Season. Corruption and politics was the payoff and now the results have come home to roost.
Although I am sure that God has noticed this meltdown the meltdown was not His objective. Getting rid of the corruption and the bickering in the Legislative branch and having the Godly solutions put back into place was the objective. Now the question is who will pay for the solution and what should the solution be.
My solution. The legislative branch of Congress has been talking about a $700 Billion dollar bailout. I hear the legislature saying they will buy out paper which is or has been defaulted on at a deep discount. But really this is not punitive to the unethical and unscruptulous finance industries. In fact I believe some of the financial portions of the finance industry may have bought fraudulent paper without their knowledge and thus would be innocent and financially burdened as well. I would take the credit card interest payments which are in reality part of the problem in the mortgage industry due to the bankruptcy law change legislation and force all of the credit card companies to replace the interest rate charge for up to six years back with a across the board six percent interest rate. Eliminate all of the penalties of any kind. The difference then would be used to reduce or eliminate the credit card bill which the credit card holders would have. Any excess would not go back to the consumer but would be used to eliminate other credit card payment amount from other issued credit cards. The reduction would be even if the consumer was unable to pay the credit card interest rate. But the credit card bill would only be allowed up the the zeroeing out of the credit card or mortgage interest owed.
There. My solution. Punishment of greed must be paid for. Caution in lending must be back in vogue. Unethical and fraudulent practices even if legal need to be punished and unscruptulous lenders eliminated from the financial industry.
So the silver lining might be that our differences are eliminated and the Congress can finally start to work together and not bash each other. My legislation is better than your attitude has got to stop. What is good for the citizens is why we have elected officials in the first place. In 1776 everything suddenly came together when they prayed. Maybe a stronger practice of prayer would be a good solution for this problem. A little bit of a higher pay grade sometimes (always) is needed.
My Financial Planning Viewpoint