Well, here is an example of the system that isn't functioning as intended: a mortgage loan that encourages paying off one debt, in order to overspend ourselves with another debt.
The interest only mortgage and the credit card debt. As a borrowing nation, I believe we've reached new levels.
It would seem that in this century we've managed to take every form of credit possible, extend it to the limit, and then look at them as if to say, 'You mean you can't pay?'
What do these loan and credit companies think they're going to be facing, when the amount of credit and mortgage they're willing to extend, reaches beyond the acceptable debt to income ratio? Why do they think these limits were established in the first place?
More consumers than ever before owe massive credit card debt. It's the way to go, many college campus are overrun with representatives from the major credit card companies, eager to extend credit to the young hands of the college student.
Are they as ready to work with them when they can't pay? No. What about the rest of the crazed, spending public? How do they handle their credit cards? Well, thanks to the interest only mortgage, we can now pay off credit card debt we can't afford, with a mortgage we can't afford. Now, that's progressive thinking.
The interest only mortgage is now a tool for replacing non-deductible over extended debt, with tax deductible over extended debt, and consumers continue to be the ones to pay. This is not a wise option, if you're already spending more than your budget will allow, how about cutting back?
Did that ever occur to the mortgage company? No, because they don't make any money if you learn to spend less.
As a fellow consumer, each of us should take the time to question our spending habits. Is it wise or necessary? If the answer to either question is no, then don't spend. You don't want to have to make the decision between over the limit spending, and a nice, warm bed, do you?
Okay, now here's an interesting spin on an already risky product, let's give the bad credit crowd a chance to make an even worse decision, and finance a home they can't really afford and obviously will have trouble making on time or dependable payments so they can payoff credit card debt, only to charge it up again!
Sometimes, the products and situations that you see in the everyday world of researching these loans, is truly amazing and this is one of those situations.
There are actually mortgage companies that advertise these interest only mortgage options for the consumer with the bad credit record to pay off any outstanding credit card debt!
Now, what I'd like to know is why the mortgage company, in all good faith, would want to take a risk such as this. It's risky financing for consumers with bad credit, when you're financing with good solid collateral, well within their means to pay.
You take the consumer and the mortgage loan outside those realms of operation, and you're just simply asking for a problem.
Maybe we should have an agency that's known as the 'mortgage police' and when there's a clear and evident violation of just good sound common sense, a whistle blows, the computer locks up, and in walks the mortgage police.
I truly believe the consumer, if not the mortgage company would be a lot better off; especially when the consumer has time to really absorb the basic facts about interest only mortgage, and the mess they can make of their finances; in the case of the bad credit consumer, the further mess they can make of their finances.
With all the government control that regulates the mortgage loan industry, and all the statistics that are published about the consumer with a bad credit rating, who do you suppose thought it would be a good idea to give them an interest only mortgage, that they more than likely will have further trouble paying?
You wonder if Alan Greenspan is aware of this situation, and if he takes it into consideration when raising the prime interest rate? Do you suppose there's a number factor for the 'really going to default on these loans' segment of his equation that determines our prime lending rate?
Let's hope Alan uses more foresight and plain good business sense than our mortgage loan brokers, especially the ones that came up with this genius idea!