Mortgage Lenders Take Advantage of Flourishing Economy
The United States of America was one of the most hardest hit nations by the Covid-19 pandemic of 2020. In totality, they nation lost tens of millions of jobs, a huge percentage of their businesses closed down permanently, and nearly a hundred million citizens were at one point seeking to draw some form of government assistance just to survive. Though as the spring months rolled around and turned into summer, the economy started to do much better. Throughout the months of May, June and July, over ten million new jobs were added, and the economy made a comeback, along with the housing market. Unfortunately, the housing market is up to its old tricks as the economy heals.
For anyone who remembers the big financial collapse of 2008, it was caused in the United States primarily by subprime mortgages and lenders who tried to essentially extort lendees with exceedingly increasing interest rates that they could not afford. A lot of people put the blame on George W. Bush, who was president at the time. Some blame Fannie Mae and Freddie Mac for giving mortgages to people who couldn't pay them. But it was actually the big Wall Street business that the elite set up around government-insured mortgages that caused all this. All the factual data points in that direction. And amid a healing US economy, those ritzy elite mortgage corporations are again spiking rates on homeowners, thinking that now's the best time to get money.
A Freddie Mac report released on Thursday, 9/24, claims that the average 30-year fixed rate mortgage rose 2.90%, which is up from 2.87, which is also up over 1% from the beginning of the year. To put it simply, as there is more demands for new homes, and as existing homeowners start feeling comfortable enough to sell their existing properties, the mortgage companies are following right behind and demanding people pay more money for mortgage loans. What Freddie Mac is hiding from the public however, and what we discovered from a bit of research, is a lot more disturbing that the 2.90% increase.
Looking up the actual sources of this report, what we found was that the adjustable rate mortgage rates are going up even faster. While Freddie Mac was enough enough to say that the five-year adjustable rates also reached that 2.90% level, they're leaving a lot off the table with 10, 20 and 30-year adjustable-rate mortgages, which are even steeper. The implication here is that we could be thrust inside of another bubble, especially with the adjustable rates.
No one should ever forget that it wasn't the fixed-rate mortgages that spurred the crisis. With a fixed rate, people know what they're getting into and they're able to budget out enough to pay these mortgages. With the adjustable rates, however, the rates will fluctuate, almost always higher, and it leaves some people having to pay hundreds of dollars more every month. This is especially true with 20 and 30-year mortgages, as the monthly payments start initially lower, but the interest kicks in much higher. Imagine going from paying $800/month to $1,100/month, and not being able to pay that for a month. There are late fees and penalties, and even more interest, to the point the next month you end up owing $2,700. If you couldn't pay the $1,100, how can you pay the larger bill?
Now, imagine this happening to tens of thousands of people.
How Things Could Spin Out of Control
The bad news is that increasing mortgage rates just give mortgage lenders the confidence that they can make as much money as possible. Some people say snarkily that the only three guarantees in life are death, taxes, and mortgage companies acting so greedy that they crash entire economies. As long as they feel as if they can make as much money as possible, they're going to keep spiking these interest rates. The real issue here is that when they spike the adjustable rates, they can go wildly out of control and ensure that many people are not able to pay them.
There are no government price controls on what these companies are allowed to do. George W. Bush never installed any, and Trump has actually given them more slack. Though Obama had eight years to do something, four of which with a majority Democratic Congress, and never lifted a finger to stop it. So, right now, the regular people of the nation are just crossing their fingers that mortgage lenders don't get too greedy this time.
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