Owning your own home -- it's part of the "American Dream." For many, that dream is now turning into a nightmare. And for millions of workers, this nightmare will continue for years and years. If you have an adjustable-rate mortgage that has recently reset, you know what I'm talking about.
For those who haven't heard of them, adjustable-rate mortgages (ARMs) are home loans that start with a low, "teaser" interest rate. In recent years, the financial class used those low rates to entice millions into buying houses they couldn't possibly afford. Now many of these workers stand to lose their homes -- and their savings -- because of these predators.
With an ARM, the interest rate is recalculated at regular intervals (from six months to two years). Especially the first time this happens, the rate goes up significantly -- often 50 percent or more. So monthly payments go up hundreds of dollars. Few can afford that kind of increase -- not for long.
This was painfully true for a 49 year-old factory worker who bought a house in Richmond Heights, a suburb of Cleveland. The interest rate on his ARM recently shot up from 7.75 percent to 11.75 percent, increasing his payment from $1,104 to $1,873.
MILLIONS IN TROUBLE
Because his salary did not also go up a whopping $771 a month, he was forced into foreclosure, according to Neighborhood Housing Services of Greater Cleveland. Though NHS has helped many people keep their homes, the man's higher payments were more than he could possibly handle even with their aid.
This scene is being repeated every day from Maine to California. Good people whose only crime was wanting to own their own home were targeted by predatory lenders. Their mortgages then got bundled into "mortgage-backed securities" which major Wall Street banks sliced and diced and sold in pieces to big-time investors. It was easy money. So the merry-go-round went round and round -- until last year, when housing prices began to fall.
With housing prices falling, the good people who had been conned into buying houses they could not possibly afford were no longer able to take out home-equity loans to pay the bills. And for many, their ARM mortgage at the same time was bumping up -- meaning they faced getting bumped out, as they began missing their mortgage payments.
In March of this year, Wall Street and the government began to publicly take notice of the problems with "subprime" mortgages. They did so, not because millions of workers stand to loose their homes, but because subprime lenders were going broke, and the banks looked like they might take a big hit as well.
SUBPRIMES AND PENSIONS
Already, some 50 subprime lenders have gone out of business. One of the largest, New Century Financial, filed for bankruptcy protection in early April. That's a joke! Its owners weren't bankrupt -- they walked away with $40.6 million by selling their stock earlier when the price was higher. But industry-wide, more than a million working families stand to be left with no house and no savings.
Are you thinking that this may be a tragedy for those facing foreclosure, but it doesn't affect you? Think again. Billions in mortgage-backed securities were sold to pensions and mutual funds. One of the largest holders is the Teachers Insurance and Annuity Association. Are you a teacher, or do you depend on someone who is? If so, you will be made poorer by these ARM's.
Do you have a 401k in mutual funds that have invested in mortgage-backed securities? Then you, too, will be made poorer by by these ARM's. The fallout from ARM's will affect workers, their families, and retirees of all stripes. It will not affect the financial class. They already have their money -- your money.
This is yet another example of the divide between the two classes. And it is yet another rallying point. As working-class Americans, what do we want? Do we want decent shelter (homes) for all, or profits for a few? Only you can decide. If it's decent shelter for all, then join us in the struggle.
It Ain't Your Fault
If your mortgage payments have just jumped over the moon, it ain't your fault. You were conned.
In the 1990's, speculative capitalists took huge profits from the skyrocketing stocks of internet and related high-tech companies -- the "dot-coms." When the dot-coms crashed at the close of the decade, it brought an end to that financial opportunity. Yet another financial bubble had burst -- with predictable results.
Because the owners and financiers control the means of production and the money supply, they knew when to cash out. Because we in the working class do not control those things, we were left holding the bag. Millions lost their jobs, lost their savings, lost their retirement.
Now we are rapidly approaching the end of another cycle of speculative capitalism - another bubble. Once again the big capitalists have cashed out. Once again we in the working class are left holding the bag. And in the bag is a mountain of excessive mortgage debt -- debt that the speculative capitalists created to inflate the bubble we are in, trillions of dollars of debt.
Debt is familiar. Speculation on such a grand scale is not. The financiers created bonds backed with mortgage debt on overpriced homes. The bonds were then sold to investors, and the money was used to create more debt -- to sell more mortgages on homes that became even more overpriced, thus creating the bubble.
Though the "value" of the homes, and the mortgages (and the bonds created out of mortgages) went up and up and up, nothing at all was produced in the process. Nothing! It was and is an enormous con game -- a pyramid scheme with the working-class at the bottom and the capitalists at the top.
Funny thing about pyramids -- all the strength is at the bottom. Maybe it's time to flex some muscle