US mortgage madness - is it happening again ?

Last night I caught up with 3 of my old mates from University, one of who has been living in Denver for the past year.

We touched on the credit crunch and generally set the World to rights, and he told a story that should cause reverberations around a World that is struggling to recover as it is......

He has some friends in Denver, and the husband is concerned about his job at the moment, and the potential effect that being out of work could have on their ability to pay their mortgage etc.

Their house has a bit of equity, so they have decided to put it on the market, and either downsize, or rent, which would allow them a bit of cash to use as a buffer.

So, they went to their bank to let them know what they were planning to do

"Why do you want to do that ?" Says the bank

"Because we may have problems paying the loan", say the couple

So the bank says (and I paraphrase) -

"Why don't you stay in the house, we will refinance onto a better rate, and go up to 125% ..."

Taken aback, our couple say "But we don't need more money, and we will still have problems paying"

"No problem" say the bank. "we will extend your term to 30 years hence reducing the monthly payments"

Shocking eh?

This is exactly the type of irresponsible lending that got us in the huge pile of shit that we are still trying to get out of. Be afraid, it could be happening again.............