How Congress Can Fix the Sub Prime Mortgage Meltdown

The percentage of sub-prime loans entering foreclosure rose to a four-year high of 13.33 percent according to a report from the Mortgage Bankers Association.

The U.S. Foreclosure Market Report shows a total of 179,599 foreclosure filings - default notices, auction sale notices and bank repossessions. The number of foreclosures are up 9 percent from the previous month and 93 percent from July 2006. This means that on your way to the grocery store, at least 2 of every 7 houses you pass are facing foreclosure.

Assigning blame for the sub-prime foreclosure debacle to the home owners is misguided. The American Dream of home ownership is out of reach for the Average consumer. The further truth is that without substantial leverage, savings and financial education , the average citizen will not have a prime credit score. The average American worker cannot afford to purchase a nice house in a nice neighborhood in their own city. Even the most modest home in most urban areas is out of reach of average buyers.

According to the National Association of Realtors , the median sales price of a home is $230,100. In 2005 the median price of a home in California was $450,990. Even with mortgage rates low, the mortgage payments on a median price home will be double if not triple the amount of the average consumers pays for rent.

The banks and investment companies found it extremely profitable to encourage first time home buyers to buy median priced homes with little money down, an questionable adjustable rate mortgage and little or no financial education.

"The consumer has to be an idiot to take on those loans," John Devaney, chief executive of United Capital Asset Management, said in May, referring to dicey adjustable-rate mortgages. But since there were plenty of "idiots" out there, and legions of lenders eager to serve them, Devaney and other hedge fund managers eagerly devoured the securities confected by investment banks from batches of dubious home loans"