Must Read: Who is to Blame for the Credit Crisis?

The Wall Street Journal has an excellent and detailed article today about the factors that led to the current credit crisis. It covers the influence of government pressure on increasing homeownership rates, reduced lending industry regulation and the rise of seemingly lucrative subprime loans. Click here to read the full article.

All this brought to mind an incident that happened last year. I was on a talk radio call in program along with a mortgage broker. We were talking about finding a mortgage and credit tips. At one point, the lender was talking about how she was so excited to be helping consumers become homeowners.  And how it was her job to do everything she possibly could to give someone the loan they wanted.

I asked "What if they can't afford it? What if homeownership isn't right for them?" And there was this pause. She replied "Oh...I've never thought of it that way."

Homeownership is a noble goal. But how did we get to a time where borrowing $300,000+ was the right answer for nearly every person in country?

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Comments

[Mortgage Maniac]

I agree with you 100%. As a homeowner I realized that maybe it wasn't the best option for us at the time. I wish we would have had someone to tell us that. Thanks.

[Jim]

I think it takes personal responsibility to actually sit down and think about taking on a mortgage. If you think your monthly payment will always be the same, think again. Anything in the house can break at any time, and your costs can go up at any time, even if you have a fixed rate mortgage. Too many stories always blame the lenders for the sub prime loans, but what about the consumers who couldn't really afford them? It's not paying the loan itself, it's handling the adjustment in the monthly payment if something changed in a month.

Consumers of all sorts are partly responsible for the 'credit crisis' because of the addiction to spending money. Look at polls out there about what will happen it the grand economic stimulus package. Almost all of them have a majority leaning to paying debt or saving the money, very little actually plan to spend it. All three directions will stimulate the economy though. Saving the money adds liquidity to banks, paying off debt frees up money borrowed from the creditor as well as money used that paid debt to spend, and spending it creates cash flow. Just give it time and the results will come.