by Jeanette Lizondro

Created on: October 21, 2008   Last Updated: October 27, 2008

You do not have to be a stockbroker, a politician or a financial specialist to understand or feel the pain of the financial crisis. It may be difficult to understand why the stock-market has been so volatile these past few weeks but it is very clear that many people are loosing jobs and their homes. Gas prices are high, jobs are scarce and it is getting more expensive to go grocery shopping than eating at McDonald's every day.

This all started a few years ago when anybody with a desire to buy a home was able to. It did not matter if you did not have a down payment or if you were a single mother working for minimum wage. If you had a pulse you were approved for a mortgage. Many sub prime lenders saw the need for people with poor credit, excessive credit card debt or at risk of loosing their homes to refinance their current mortgage. These companies created programs for these types of borrowers to enable them to obtain mortgages.

Some of the programs created by these sub prime lenders included, "interest-only loans" and "2 or 3 year ARMs". These type of loans enabled the lenders to keep the monthly payments low for a few years. They bundled up the borrowers debt including the mortgage, credit card balances and outstanding loans, which made it possible for borrowers to obtain larger mortgages and still keep their monthly payments at an affordable amount.

Many times these loans came with large closing costs and higher interest rates at the end of their 2 or 3 years term which increased their payments as high as 50% or more. We ask ourselves how does this happen? How did the homeowners allow this to happen? The answer is easy. Many borrowers were not aware of what they were agreeing to. It is very easy to convince a homeowner at risk of loosing their home and facing collectors every day that the mortgage program being offered is the only way out.

These loans were many times offered by uneducated young loan officers pressured by their superiors to sell these loans. Quotas had to be met by each loan officer and so a loan had to be sold at any expense. Often times, these loans were closed by notary publics whose only job was to witness the signatures on the loan documents. These notary publics were instructed to just close the loan and overlook the closing cost fees and other loan details such as interest rate and term.

So the end result is a bad loan made to an uninformed and often times desperate borrower made by a greedy sub prime lender who only cared about the commission earned. At the end of the 2 or 3 years the interest rate rises, the payment increases and the homeowner is no longer a homeowner but a displaced victim of our economy.

Many of us ask, "Where was Uncle Sam during this time?". The answer is clear. Uncle Sam was enjoying the taxes collected on the higher income generated by the loan officer's and sub prime lender's commissions earned from the sale of these bad loans.

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