During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.
The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.
Deep within the finger pointing phase (either borrower's or lender's fault) of the debt crisis, it is clear that an increasing number of borrowers cannot or will not pay. Also, the inability to define direct ownership loans as a result of securitization only perpetuates the cycle of inaction described below.
“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”
Who is a greater fool? The person (and institution) that borrowed and loaned recklessly based on an illusion, or the individual that lived within their means but continues to pay their debts while others do not? Society's answer will influence confidence in a monetary system that formed this question.
Source: nytimes.com
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