Residential Glee & Web August 31, 2007
Predatory lending pisses me off.
Today I was reading an article on CNN regarding the lending crunch resulting from the current subprime mortgage mess…you know the scenario: A greedy lender offers their customer a toxic ARM without making clear the risks of such a loan. The customer could afford a better (fixed) loan, but jumps out of his/her seat when he/she realizes it’s possible to borrow $300,000 for under $800 per month…at first. What they don’t often realize is the loan will later reset to a much higher rate, easily doubling their monthly payment.
What really made me sick, however, were the content-generated ads that appeared at the bottom of the page…
Taken directly from an article complaining about predatory lending practices, we have an ad claiming you can get a “$300,000 loan for under $799/mo.” The title of this particular ad reads “Refinance at 5.7% fixed!” I refuse to believe I’m the only one struck by the irony of this situation. (Yes, I know one of these ads could show up on this page somewhere, but I’m not going to kill my layout by removing it, so just know what you’re clicking, okay?) I’ll spare you the math and just hand out the numbers:
If you assume a 30-year fixed loan of $300,000 at 5.7%, your monthly payment would be $1741.20 per month. Break that number down and you get a little over $1400 a month for the interest portion (or almost twice the total advertised payment), and just over $300 each month to chip away at the principle portion of the loan (true, the interest will creep down and the principle will creep up as you continue to make your payments, but the overall payment is still fixed at over $1700).
Now this isn’t taking into account the extra dough you’ll need for your escrow accounts to pay your taxes and homeowner’s insurance…you can safely assume you’ll fork over another couple hundred bucks here. In the end, this loan should be at least a gut-checking $1900 every month if it’s a true 30-year fixed-rate mortgage. The advertisement above, however, seemingly tells us we can get a $300,000 home for under eight-hundred bones each month at 5.7% fixed…well, technically the ad is offering two different loan products, but why should we expect them to clarify? It’s just good advertising, right?
This kind of crap is what got us into this whole subprime borrowing crisis, and what’s causing hundreds of thousands of people to lose homes they never should have been able to purchase in the first place.
Sure, some of the blame lies with ignorant borrowers, but most sits on those freaking greedy, morally-bankrupt lenders. These lenders purposefully mislead good people who end up buying something that will ultimately lead them to ruin, and it really pisses me off.