If you want to know what’s wrong with our financial system at the moment, one data point arrived in my (snail-)mailbox yesterday.
I’m used to be being bombarded with loan and credit-card offers. They usually take a one-way trip to the shredder. But the subprime mortgage meltdown has been so much in the news of late that I thought I’d have a look at the latest crap the lenders were sending my (non-subprime) way.
Yesterday’s “Payment Reduction Offer,” from an outfit called Statewide Bancorp, promised “the security of a 30-year Fixed” yet somehow was going to cut the monthly payments on my existing (30-year fixed) loan by half. Wow! Good deal! “With this money you could buy a new car, remodel your home, pay-off high interest debt or use the money for whatever you want.” Cool! And they say “it’s almost impossible not to qualify!”
How can they do that? Ah. If you flip the letter over and read the fine print — better get out your magnifying glass — you discover that this isn’t a traditional fixed-rate loan at all. It’s a fixed-rate with a five-year teaser, where for those first five years you’re doing a “minimum payment” and defer interest.
I have no clue what happens to the payment amount after that five-year period is up, but it can’t be good — it’s certainly more than I’m paying now, and there isn’t a word about that anywhere in the letter. So much for the “security” of your fixed rate: the whole point of a fixed rate is predictability on your payments. Oh, yeah, there’s also a prepayment penalty, so if you get suckered into the loan and want out, they’ve got you there, too.
This is the sort of underhanded marketing of a lousy loan that got the mortgage market into its current mess. Apparently, the BS machine is still happily cranking out these offers, even as the market collapses. And you wondered why the U.S. financial system has the jitters?
[tags]subprime mortgages, mortgages, loans, lending[/tags]
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