Harvard University

Middle Class Americans in Foreclosure and Bankruptcy at Record Levels – Why?

Research by Harvard University predicts that 1 in 7 middle class families will go bankrupt by the end of this decade!

Foreclosure rates on American home owners have exploded over the last 5 years.

Yes, we know about the real estate Bubble. The Bubble was also a creation of the banking industry, specifically the policies of the Federal Reserve Bank; but

we will focus on the underlying predatory bank practices that preceded the Bubble and will exacerbate the situation once it pops.

These are the truths the mainstream media, the conservatives and the government do not want the average person to know.

Research at the Demos Institute, in New York among others; show most middle class families in foreclosure and bankruptcy are there for reasons beyond their control: Job loss, Medical bills, Family breakups account for nearly 80% of the cases.

Many of these people were victimized by the banking industry in their quest for super profits.

They extended excessive credit to those it knew did not have the ability to repay.

Why would they do that?

Greed, unethical business practices and the desire to permanently enslave middle class people in debt, to name a few reasons.

While credit card delinquencies exploded, up 33% from 1980 to 2001, these accounts were twice as profitable as other bank loans. Bank's fee income from late payments, over limit charges, etc. have risen nearly 500%, from $ 1.7 Billion in 1992 to $ 7.3 Billion in 2002.

The banks convinced the Federal courts in 1997 that they are exempt from state usury laws. They can charge any interest rate they want. Rates as high as 29% or more are not uncommon among hapless borrowers with late or missing payments.

Banks prey on weak borrowers. A high placed Citibank credit card executive said these people were their "Best Customers!" according to E. Wilson, a Harvard Law Professor in her best selling book, "The Two Income Trap."

The banks bailed themselves out by offering these borrowers the chance to go from the frying pan into the fire by "Consolidating" (paying off the bank's delinquent credit cards, including arrears and fees) their credit card debts.

They were given "Sub-Prime" loans. These loans carry high rates, making it even more difficult for these financially stressed people to pay even higher bills.

While interest rates on 1st mortgages were 6.5% in 2001, Citibank was enjoying a rate of 15.6% on its sub prime loans! (Incidentally, Citibank was fined by the government for forcing sub-prime loans on minority and elderly applicants!)

Why would they, having just escaped with their profits from the delinquent credit cards, offer the same borrower tens or hundreds of thousands of dollars more money?

The banks are cynical and immoral!

They know that by consolidating their credit card debt, the borrower's are converting their Unsecured Debt (credit card debt) to Secured Debt, mortgage debt.

The banks were positioning themselves to make ungodly profits or take the homes of the desperate borrowers!

You see, Unsecured Debt could be wiped out in bankruptcy, Secured Debt can not. The banks will either enjoy the super high returns on their sub-prime loans (a sub-prime, $ 100,000 loan can pay the $ bank 250,000 more than a normal loan) or they will get the person's house!

If the person falls behind in their mortgage payments, they are doomed to lose their home. Many will rush to file bankruptcy, trying to save their homes.

Whereas, they could (prior to October, 2005) have declared bankruptcy and wiped out All of their credit card debt, and been debt free, they can not wipe out the mortgage debt on their home by declaring bankruptcy!

Since the passage of the anti-consumer bankruptcy reform act of October, 2005, it seems that banks have closed off this possibility of wiping out credit card debts through bankruptcy as well, sentencing even more borrowers to debtor's prison for life.

Now borrowers will have to file a phony "bankruptcy" which does not wipe out their debts, it merely gives them more time to pay them; while still showing up on their credit.

The truth is that over 80% of those filing these chapter 13 bankruptcies lose their homes the court mandated payments are too high. Ironically, only $ 300 / mo more income would have allowed most of these families to avoid bankrutcy!

With a foreclosure and a bankruptcy on their credit, these people are locked into Sub Prime Hell for the rest of their lives.

I suppose that Citi Bank executive would say they were now his Ideal Customer!

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