Tuesday, October 18, 2005

You Spin Me Right Round Baby Right Round...

Amey Stone, one of the rotating columnists in Hot Property at BusinessWeek Online is concerned about the spectre of mortgage abuse. She digs out from the comments in some thread somewhere the following anecdote:
I am a lawyer and I represent illegal aliens in deportation. In all but one of 35 cases I currently have on docket the illegal owns a home. But it is the loan terms that fascinate me. One lady finished school at second grade, speaks no English, and works for a recycling company binding cardboard boxes. She makes about $30K per year and is a single mom with three children. She has a $430K interest only loan that she used last year to buy a $430K condo - 100% financing - she paid $3,000 in closing costs. I tried to explain that her monthly payments will rise substantially in four years. She does not believe me, did not understand what I said and told me the loan and real estate agents specialize in real estate and would have told her if her payments could go up. If 34 of my clients with risky loans and no school past at best eighth grade are surprised by rising loan payments, we should be afraid. This is the last group desperate lenders pander to, meaning we're near the end.

Think about the credibility of the source of this information before you get too cranked about it, but the problem I want to highlight is that this story seems pretty damned plausible. It shouldn't be.

If this story turns out to be true, and anywhere near representative of how bad the mortgage abuse problem has become, then we are looking at a blockbuster of an economic horror show opening soon in a theater of operations near you. I have a very bad feeling about what may happen when millions of Americans find out all about how the Enron decade isn't over yet.

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