Why You Should Not Fear Your Mortgage
September 4, 2009 in Mortgages & Credit
Back in the 1920s, a common clause in loan agreements gave Banks the right to demand full repayment of the Loan at any time. When the Stock Market crashed on October 29, 1929, millions of investors lost huge sums of money, much of it on margin. Since the value of the Stocks dropped, few investors wanted to sell, so they had to go to the bank and take out cash to cover their margin call. It didn’t take long for the banks to run out of cash and start calling loans due from good Americans who were faithfully making their Mortgage payments every month. However, there wasn’t any demand to buy these homes, so prices continued to drop. To cover the margin calls, brokers were forced to sell stocks and once again there wasn’t a market for stocks so the prices kept dropping. Ultimately, the Great Depression saw the stock market fall more than 75% from its 1929 highs. More than half the Nation’s banks failed and millions of homeowners lost their homes.
Out Of This The American Mantra Was Born:
Always own your home outright. Never carry a mortgage. The reasoning was simple: If the economy fell to pieces, at least you still had your home and the bank couldn’t take it away from you. Since the Great Depression, laws have been introduced that make it illegal for banks to call your loan due. Additionally, the Fed is now quick to infuse money into the system if there is a run on the banks, as we saw in 1987 and Y2K. Also, the FDIC was created to insure banks. Still, it’s no wonder the dread of losing their home became instilled in the hearts and minds of the American people, and they quickly grew to fear their mortgage. And because of this, for nearly 75 years most people have overlooked the opportunities their Mortgage provides to build financial security. Yet most homeowners sit on their biggest Asset and never maximize its full potential. Now is the time to put that Equity to work for you!
Article provided to the La Quinta Chamber of Commerce – GEM Publication February 2007 page 20.
