It’s easy to blame the country’s soaring foreclosure rates and high number of mortgage defaults on subprime loans. After all, these are the loans lenders make to borrowers with not-so-stellar credit. It makes sense that these are the folks who would struggle to pay back their loans.
But don’t be so quick. The country’s mortgage mess is a result of a lot of people taking out stupid loans. Many of these people have fine credit. They just took out a loan that made tiny sense.
Here’s the basic problem: Because rates on mortgage loans have been so low for so long, many borrowers took out adjustable-rate and interest-only loans so that they would be able to get into a home that was larger and nicer than one they’d usually be able to afford. Unfortunately for them, adjustable-rate and interest-only loans come with an interest rates that is artificially low for a set period of time. After that period ends, the loan adjusts, usually to a rate located closer to current market conditions.
That means a higher mortgage payment. And unfortunately, many of these borrowers — with their high credit ratings and all — couldn’t afford their new monthly payments.
Let’s not blame today’s mortgage problems entirely on those folks with poor credit. I know it’s easier to do that. It’s just not accurate.
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