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Having trouble understanding the American Housing Crisis ? Let me help you.
Get a loan with a low teaser rate on the first house, sell at a profit and use your new equity and another round of easy credit to get a grander house. Patti Arnold, who handles house closings as an Orange County escrow officer, says many of those loans had minuscule initial payments, allowing borrowers to put off paying back principal. "Everyone just kept moving," recalls Ladera resident Darlene Kelly, speaking on the front porch of the foreclosed home where her husband, a broker, is hosting an open house.
This is called a Pyramid Scheme.
You see what happens is a few initial investers get in , sell to others , get out. Then the others try to repeat that , and ... well... sooner or later the music stops. In this case, sooner or later the 2 year teaser on the morgage runs out and then someone is stuck paying full price.
If you're a sales agent , this is a great scheme, because all those sales mean commisions for you. If your the one stuck holding the bag when the music stops ... *CRASH* goes your finances.
It's a scam. And it's convoluted enough to be legal. It doesn't look like a pyramid scam , but it is, just the same.
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