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 Editorials | March 2007 
The Credit Damned
 Isabelle Rey-Lefebvre - Le Monde
About two million Americans are likely to see their houses seized for their inability to pay down their loans. A risky real estate-based credit industry has developed in the United States, called "sub-prime mortgage," which already represents 20% of the market. Disadvantaged people with iffy income and without any personal savings access credit - and consequently property - this way, with the quid pro quo of higher effective interest rates.
To keep down the first years' monthly payments, bankers mobilize every financial technique, from variable rate loans to progressive payment loans with two years of deferred capital amortization, postponing capital reimbursement, in montages the subtlety of which escapes this - often least-informed ... clientele. Then, as is the case with the loan called 2-28, blamed particularly in this business, the monthly payments go up like a rocket starting in the third year.
The system worked rather well until just recently, as long as the rise in house prices allowed borrowers to resell their house at a gain, redeeming their loans without a problem, or to refinance as a function of their house-price rise. Thus, have millions of Americans been able to become home-owners and have whole neighborhoods been revalued and renovated. But the mechanism jams up when the market slows down and house prices stagnate or drop. That's the case today, when nine American banks are in danger of foundering with their clients, caught in the trap.
In comparison, France seems like a paradise for the real estate borrower, who enjoys rates among the lowest in Europe, detailed information, and complete protection, with waiting periods for reflection and insurance in the case of death or disability. "While the law in the United States makes sure that every category of the population without discrimination has access to credit, the French legislator and French consumer organizations strive hard to protect the borrower from the ill effects of credit," analyses Bernard Vorms, Director of the National Agency for Housing Information (ANIL).
The downside: atypical borrowers who do not fit the banks' solvability criteria - and whose proportion is growing - are flatly excluded from credit. That's the case with the elderly and the infirm, who cannot get life-disability insurance, and of everyone with part-time, fixed term, interim, seasonal (tourism or agricultural) contracts, not to mention members of the liberal professions and craftsmen.
Bernard Vorms and Claude Taffin, an economist at the Social Union for Housing, are, at the government's request, seeking solutions to relax some of the French rigidities without falling into American excess.
Translation: t r u t h o u t French language correspondent Leslie Thatcher. |
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