Responsibility In Lending - Newark Foreclosure Spikes
Earlier today a friend sent me a link to this New York Times Article, Behind Foreclosures, Ruined Credit and Hopes (RR) which highlights some of the personal stories of people facing foreclosure in Newark New Jersey.
Newark is a local example of a national trend - People with poor credit were given mortgages by lenders who knew (or at least, should have known) they would not be able to afford. Now those people who started with little savings or moderate income are defaulting on the "no money down mortgages" which allowed them to buy a home.
Don't get me wrong, I believe that everyone who wants to own a home should be provided every opportunity to become a homeowner. However, lenders need to be responsible in their lending practices and they bear a responsibility to making sure that the loans they write are suited for their consumer. When loans are made that are not suitable, people are unable to pay and the bank is forced to foreclose - this is a double whammy. The individual given a loan not suitable for them has their credit destroyed and will take many years until they are able to get another mortgage to buy a home while the bank is forced to keep anywhere between 2 and 8 times the amount of the mortgage the borrower is delinquent on, in their reserves and not lent out. With more delinquent mortgages there is less money in the marketplace to loan and less people qualified to borrow the money that is there.
