How the Mortgage Mess Arrived, and How to Get Out

In northeast Ohio, the current sub-prime mortgage mess is as bad as it is almost anyplace in the country. Foreclosures have risen immensely, with many more families in danger of losing their homes. Driving through any neighborhood, you can see for sale signs that have remained in front of houses for months, if not years. Foreclosures are a threat for people who could never afford their homes and for those who simply cannot sell. With blame available for everyone in this mess, the questions now are how to get out of it, and how to prevent the situation from occurring again. Carefully analyzing what went wrong is the first step in figuring out how to fix it, and how to prevent it from happening again. Bringing in some elements from the world of renting can help lower interest costs, reduce foreclosures, and generally improve the morass in which we now find this segment of the economy.

What Went Wrong?

The problems that led to the current crisis emerge from every corner. Some fault lies with those purchasing loans without fully understanding their terms - or understanding the terms but counting on something happening for them. Many of these people are victims of predatory lending, which I will discuss momentarily. However, at some point, if you have doubts that you can really afford a home, you have a duty to yourself to question how the magic being offered works.

Further, there are many kinds of purchaser for a home. The practice of "flipping" houses contributed to the crisis in two ways. First, it helped drive property values artificially high, to the point that families who might have been able to purchase property under traditional terms no longer had that option available. Second, such flippers counted on values to continue to inflate, so that many ended up stuck with homes they do not want but cannot unload.