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Sep 18, 2007 -- Pre-loan counseling could help address the foreclosure epidemic

The question of who's going to rescue the two or three million families who are facing foreclosure is the hot potato that everyone's tossing around right now. Going into foreclosure affects more than just the people who are thrown out on the street; the average home value in a neighborhood that has foreclosures drops one to 1.5 percent. President Bush has been talking about a proposal to help out. The Federal Reserve is putting pressure on the banks to come up with workouts such as changing loan terms and stretching out payment plans. All of this will help some, but many families will still be in over their heads. That's because a lot of loans may have been securitized, or bundled together into a collateralized debt obligation (CDO) and sold off by a mortgage company. The rules of the CDOs usually state that the loan terms can't be modified.

The best solution would be to help people avoid getting into loans they can't handle. To that end, the state of Illinois has come up with a plan that Clark really likes. The Chicago area is facing major foreclosure problems, so the state is now requiring candidates seeking loans with pre-payment penalties and adjustable rates to go to independent counseling and learn about the dangers of their choices. The mortgage lenders, meanwhile, are going berserk over this new rule, and they're trying to have it thrown out because many of them want to continue ripping people off with exotic loans. Clark gets worried when he hears presidential candidates talking about federal bailouts to solve the foreclosure problem. Wouldn't it be better if people were educated not to make the wrong loan choices from the start?

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What others are saying

  • An Informed Consumer is the Ideal Solution
    It is an undisputed fact that the current foreclosure crisis is a direct result of home loan borrowers obtaining mortgage loans under terms that the majority had no clues as to what they were getting into. The consequences of making a bad loan decision not only affect the home owner's family when it results in foreclosure but also their neighbors' property value, the local and national economy and ultimately the global financial market.

    Since the cumulative consequences are so serious and potentially far reaching, it makes a great deal of sense that a borrower should be educated on mortgage loan options and their implications before obtaining a loan. An informed consumer is better able to make choices that will protect their interests than being railroaded into loans that might only be serving the interest of those writing the loans.

    To prevent this current crisis from repeating itself, there must be a comprehensive effort to arm consumers with knowledge. It beats any program merely designed to bail out those who could have been spared had they been educated to making wise choices in the first place.

    I therefore believe that the plan being considered by the state of Illinois is a sensible one.
    - http://www.consumerfinancialeducationforum.com
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