What your banker won't say...
This summer could be bad for many consumers, and then the rest of the years could be rough. Rising interest rates, higher credit card minimum payments, fluctuating gas prices, and falling home values could be a disaster for many families who are already close to going bankrupt.
Americans who recently took out loans on their overpriced homes at historically low interest rates can now see a sign of what's to come. Some people may find themselves upside down, meaning they owe more on their home than it is worth. In other cases, credit cards with low interest rates now have to have APRs that are at least four percentage points higher than they were two years ago. Also, regulators have told issuers that some cardholders with high interest rates must pay twice as much as the minimum payment. But the thing that really hurts is that gas prices could go up to any price any day now. Gas prices of $4 per gallon, higher utility bills, credit card interest rates of 30 percent or more, and holding on to a home equity line of credit of 100 percent or more could push more Americans into foreclosure and, eventually, bankruptcy.
Don't lie to yourself about how things are at home. There is a clause in your contract with the lending institution that says they can "call in" the loan at any time if you are upside down on your mortgage. That means, in a nutshell, that they can force you to pay enough so that you have enough equity or they can take your home away. Why would banks do that?
Think about it like this. Simple as that, banks are in business to make money. Also, if you send your mortgage payment to Chase Manhattan by mail, it could be sent to The Bank of Beijing instead. Yes, that's right. China now owns more than 40% of the mortgages on American homes.
There is a clear reason why the minimums for credit cards have gone up by 100%. The credit card industry will try to get you to believe things like, "They are trying to help people get out of debt faster." What they are really doing is this: if you can't make the minimum payment and contact them, they are now trained to look at your credit file and see how much (if any) equity you might have in your home. Then, they offer you a loan through their bank to pay off your debts. If you decide to take them up on their offer of a loan to pay off all your debts, they will own you. If you don't pay your credit card bill, they can take your home. Watch out for wolves that look like sheep.
Consumer credit counselling is another sneaky offer. Every ad and commercial you see for this service will say that they are a non-profit organisation that was set up naturally to help you get out of debt faster and avoid bankruptcy. What you don't know is that the credit card industry is what drives and pays for the non-profit consumer credit counselling industry. They have to answer to the credit card business! Also, they won't pay your monthly bills on time, which will hurt your credit history no matter what. I've seen this over and over and over again.
Now I'll talk about ARM's. In short, they are mortgages with rates that change. We've never seen so many people with no credit files get home loans in the history of the United States. Many of these people were just trying to live the American dream, which is, of course, to buy as much house as you can afford for as long as you can. Because of this, a lot of people who couldn't afford their dream house with traditional financing were able to buy it with an ARM loan.
In the long run, this will hurt them very much. When they signed an ARM, they were betting that interest rates wouldn't go up over the next 30 years. When the rate goes up and their mortgage goes up with it, we will start to see the effects in the form of a lot of foreclosures. As of this writing, the number of foreclosures is already at an all-time high. Indianapolis has the most, followed by Atlanta and Dallas-Fort Worth. As long as rates keep going up and jobs keep being sent overseas, there will be so many foreclosures that it will be worse than the 1980s.
