Mortgage Trend

Posts Tagged ‘emergence’

Is there really such a thing as good debt. The bible in one part says, “Neither a lender or borrower be.” Folks such as Dave Ramsey would argue that no debt is good. Some would say that debt to buy a house is ‘OK’. Nevertheless, the bottom line is that Americans are drowning in debt.

According to: http://www.bankrate.com/brm/ne ws/debt/debtguide2004/debt-tri via1.asp

(bankrate.com)

“Average per household debt in the U.S., not counting mortgage debt, is about $14,500 – especially noteworthy because before the 1930s, most middle and working class people had no major debts. Banks would not lend to them; they rented their homes and if they did own a house, it was paid for as it was being built.”

At $1000 per month that amount of credit card debt would not be paid back in a year. At minimum payments the annual 20 percent plus interest rate for many of these cards is growing the debt by almost $3000 per year. Add to this figure fees and late penalties and it is easy to see how the average American finds himself in an inescapable trap.

The rapid emergence of payday lenders charging in some cases over 300% annually is another sign of the rapid spin-out of the US consumer’s credit picture. Bank overdraft charges are yet another form of short term lending that generates 200%, 300% or more annual return on the money over-drafted for two or three days.

There was a time when this type of lending was illegal. Interest charges were not allowed to be classified as fees and maximum interest earned in a year’s time did not exceed a modest percentage. The laws that supported this lending were called usury laws. Nevertheless, the financial squeeze on the middle class, the greed by lenders, the lack of attentiveness by the government has put many Americans in a situation where there is often no apparent way out.

The one way out for most middle class Americans went away with the passage of the bankruptcy act in 2005. This act basically destroyed the middle class refuge and the only thing that held overreaching lenders back. It was a vote for business that has hurt many paycheck to paycheck Americans. And continues to do so.

If you examine the meltdown of the mortgage market, the protections that went to investors, the outragious returns, the seeds of the same problem exist. Predatory lending, its wake is starting to tear the country’s economic future up. No debt is good under these circumstances.

The legal pendulum should swing in the direction of protecting the consumer. This means a return to caps on interest earnings from loans, stop calling interest fees, capping total earnings on lenders, requiring due dilegence, requiring lenders to hold their own paper and returning bankrupcy laws to protect the consumer, not big business.

When loan sharks do the same thing, it is called brutal and illegal. Why when it has the same impact but a new store front is it now ok?