Usury By Any Other Name…Still Usury.
I’m sure the news of the stock markets continued rise hasn’t missed any ears. It makes me think this economy of ours is going strong, and we all have quit a financial future ahead of us. Then I consider our nation’s debt, our citizens’ debt, and I wonder why the stock market continues to rise.
The commercials that appeared on television sure were enticing, so much so I ran to my computer to check out the lenders online. I remember them clearly. They offered mortgages with dramatically lower rates than typically found. I saw monthly payments half what I pay, for a loan twice as large. How could that possibly be? I want in!
Luckily I checked it out and considered the implications, but how many did? Or how many considered them, but took that risk? Is it usury?
What implications? Well, these loans have borrowers paying towards the interest only. A $400 a month mortgage payment for a $200,000 dollar home sure sounds good, but when you read that your $400 is going entirely to the interest, and not a drop to the principle amount, you better take a step back and think about this. Imagine taking this and paying month after month, only to find out you don’t own even the smallest percentage of your home. No equity built whatsoever. Have you been paying a loan, or renting?
Then there’s subprime lending. What I find humorous is the names given to this type of loan seem so positive. “Subprime” sounds like the rate is lower than the prime rate, when it’s actually higher. Another name given to this loan type is a “second chance loan”. Again, sounds great! I get a second chance! Or how about “B-paper loan”? This doesn’t sound positive, necessarily, just confusing. What the hell is a “B-paper”?
The idea behind subprime lending is that you pay a higher interest rate because your credit isn’t good and you’re seen as a higher risk. The lenders say the extra interest helps them recoup their loses from subprime lendees who defaulted on their loan.
The problem with these loans is many are set up to fail, and let’s face it, the banks don’t really lose anything. If it’s a mortgage, the bank gets the house.
In recent months we’ve seen families lose their homes because of their subprime loans. Proponents of subprime loans say “well, these are people who wouldn’t have qualified for a loan before”. This virtually ignores the fact that the families are now worse off. Their debt building further, and credit rating dropping more.
The answer isn’t to give struggling people loans with higher interest rates, but help them build equity and retain a loan they can, and will be able to, afford. Subprime lending is a racket. Lenders get money from the lendees for as long as they can pay. And when that stops, they’ve got a home. This now becomes what we call predatory lending.
So what’s the point of all this? We need to be clear on what usury is. We need to address the problems of poverty and our struggling families so they do not become further victims of these predatory lending practices. It’s clearly wrong to be setting people up for failure. And, by the very heart of the term, taking more money from those who don’t have it is clearly usurious.