Bankruptcy America

by Po-cheng Huang

Over the past one and a half year, we have witnessed the fall of the U.S. housing market which started from personal bankruptcy and led to the foreclosures of millions of houses. One of the brilliant idea that came from Countrywide Financial that somewhat started the mess was the change in the structure of home equity loan which traditionally were close-end credit, but as the financing company introduced the open-end type payment on home loan, things started to change. The open-end type home loan is pretty much like credit card payment, they want you to only make the monthly minimum payment so your debt in home loan will only keeps getting larger like a snowball rolling down the hill, and when you eventually unable to make payment on time, whether is because of other financing deal you have other than your housing loan, such as credit card or other unfortunate event occurred such as you lost your job, the creditor will simply recognize that as default and do anything to try to squeeze everything possible out of you and if that still doesn’t cover, they take away your house. Therefore to some extent, I see the change in home loan as American people are given a much bigger credit card since there are greater refinancing ability that came along with the house with raising value, and when the bubble burst, those who can’t continue to honor their contract, go into bankruptcy and have everything they thought they owned taken away from them.

Reference:

http://news.yahoo.com/s/bw/20090213/bs_bw/0908b4120034085635
http://meganmcardle.theatlantic.com/archives/2009/01/more_questions_about_the_mortg.phphttp://www.ft.com/cms/s/0/1ed1d3e2-f4f3-11dd-9e2e-0000779fd2ac.html