HisHersMoney

Below is a paragraph from a poker-playing friend of mine from California who has so simply summed up the majority of my feelings concerning the entire subprime housing ‘crisis’ that I had to share it with everyone. Head over to Blinders’ site to read the entire article and to share your comments.

Blinders: Subprime Mess – Who Are The Real Victims?: “Now if interest rates were rising it would be a different story. If the fully indexed rate is 6% and you can afford to make those payments when you take out the loan, but interest rates rise to 8% by the time the payment adjusts up you can have unplanned issues. The problem is that interest rates are not rising. If somebody took out a subprime loan exactly 2 years ago the federal funds rate was 4.75%. Today the rate is 2.25%. Two year old sub-prime loans adjusting today are adjusting to a rate that is 2.5% below what was planned. The fully indexed non-teaser payment is much less today than what would have been planned for when the loan was taken out. How this can lead to massive foreclosures is beyond me. Adjustable Rate mortgages get more affordable every time the fed lowers rates, and rates are dropping fast.”