"Pay day" loans exacerbate housing crisis

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http://www.reuters.com/article/newsO...45663120080324


By Nick Carey

CLEVELAND (Reuters) - As hundreds of thousands of American home owners fall behind on their mortgage payments, more people are turning to short-term loans with sky-high interest rates just to get by.

While figures are hard to come by, evidence from nonprofit credit and mortgage counselors suggests that the number of people using these so-called "pay day loans" is growing as the U.S. housing crisis deepens, a negative sign for economic recovery.

"We're hearing from around the country that many folks are buried deep in pay day loan debts as well as struggling with their mortgage payments," said Uriah King, a policy associate at the Center for Responsible Lending (CRL).

A pay day loan is typically for a few hundred dollars, with a term of two weeks, and an interest rate as high as 800 percent. The average borrower ends up paying back $793 for a $325 loan, according to the Center.

The Center also estimates pay day lenders issued more than $28 billion in loans in 2005, the latest available figures.

In the Union Miles district of Cleveland, which has been hit hard by the housing crisis, all the conventional banks have been replaced by pay day lenders with brightly painted signs offering instant cash for a week or two to poor families.

"When distressed home owners come to us it usually takes a while before we find out if they have pay day loans because they don't mention it at first," said Lindsey Sacher, community relations coordinator at nonprofit East Side Organizing Project on a recent tour of the district. "But by the time they come to us for help, they have nothing left."

The loans on offer have an Annual Percentage Rate (APR) of up to 391 percent -- excluding fees and penalties. All you need for a loan like this is proof of regular income, even government benefits will do.


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credit cards, pay day loans, etc, just to pay a mortgage. its happening here too.

[Happy]

Not the way to go.

But some people probably do not know how to calculate what they are jumping into.

[ROE]

most people got themselves into that mess probably don't understand
the commitment require for a 30 years home loan...

it's not what they can afford now or 2 or 3 years but for the whole duration of the loan.

They apply the same principle when they go to credit card and pay day loans
yeah I can afford that now so I go for it, never stop to wonder what happen after 5 years or 10 years down the road.

If they have any brain, they sell up and get out and hopefully they have some equity left in the place otherwise they digging into a deeper hole and they got nothing but massive debt in a couple of years.

[Judd]

Has it really been so different over many years? There have always been slugs who leech blood out of the financially uneducated. Hire Purchase arrangements is one which springs to mind. Same with bridging finance for those who do not understand what it really means.

I'm at a loss as to how you stop or legislate against utter stupidity or greed. I don't believe you can on a realistic basis because if you legislate against all risks being taken (and what is the level at which you don't?) then you simply call an end to capitalism which is based on a risk to some degree or other.

My simpleton's view of life.

[Julia]

Quote: Originally Posted by Happy Not the way to go. But some people probably do not know how to calculate what they are jumping into.