BANKS THAT IGNORE THE MISTAKES OF THE PAST ARE DOOMED TO REPEAT THEM----PART THREE

YOU CAN RUN BUT YOU CAN'T HIDE Now, you may be asking, what does all this have to do with you? --- If you owe money on one of these mortgages---the kind where interest rates can change periodically, upward as well as downward---be prepared for an increase in your monthly payments. Even though interest rates in general might go down around the country, some of these diabolical mortgages have clauses in them that can boost their rates while other rates are going down. If you’re not sure if that is the case with your loan, check with your lender. --- If you’re in the market to buy a home or condo within the next one to three years, be ready for a more-than-tough scrutiny of your credit history, your income and debt situation and the true market value of any house you’re thinking of buying. ---If you’re thinking of investing in any mutual funds, carefully scrutinize how the fund has its money invested. They are not going to advertise that they have an excess of sub-prime mortgages waiting to default. Many of these born-to-be-bad loans are cleverly disguised as well-rated corporate bonds. This is not science fiction. Many big mortgage companies have already gone bust. Many big banks and financial institutions have had to absorb huge losses, some in the billions of dollars. The casualty list includes a lot of foreign banks, making one ask, “How could they have gotten suckered into putting money into complex American scenarios that were far beyond their normal scope of understanding?” They were sold a bill of goods on these sub-prime deals by a band of roving salesmen from the U.S., pitching the deals to all who were gullible and/or greedy. Unraveling the loan packages to determine the ultimate outcome of who gets what may take years to determine. “The Sub-Prime Mortgage Disaster” will be a Chapter Title when the history of the early 21 century is written. As this is written, it’s too early to tell how far the ultimate fallout will reach. Lawyers will have a field day. Remember Ladbroke’s guarantee? These deals were loaded with guarantees and buy-back clauses and recourse positions and other things that the lawyers are so good at making up. Cutting through the jungle will cost more in legal fees than can be recovered. But there will be those who’ll try nonetheless. Of course, one important way that major harm to borrowers can be avoided is if the lenders themselves take a sympathetic approach and work with the borrowers to help ease their payment crunches and facilitate refinancing as and when practical. This will make the banks’ stockholders unhappy. But that’s a relatively small price to pay to keep the markets stable. Will the lenders take such a sympathetic approach? Hard to say. It often costs a bank more to foreclose a property and fix it up for resale than the actual delinquent payments total. In other words, they might well be better off letting the owners of the homes stay there, making whatever payments they can, rather than foreclosing and dumping innumerable houses into an already glutted market. Also, the governments (state and/or federal, wisely and/or unwisely, or any combination thereof) have made moves to regulate interest rate increases, lenders and loan brokers. Many borrowers were conned into signing up for loans that they didn't understand. And there are arguments that borrowers who were greedy enough to falsify facts on their applications shouldn't be given government protection. Only time will tell who gets what protection from whom. And until time tells, you must be careful in shopping for a home loan, and in making any investments that have sub-prime loans (hidden or otherwise) in their portfolios. Stay tuned at this site for updates as they occur, as they can affect you and the economy as a whole.