The "Foreclosure Crisis"
As a fairly new homeowner, my ears perk up when I hear the word "foreclosure." Lately, they've been perking so much that it's giving me a headache. Here is today's contribution to my cranial discomfort.
Let me set the record strait and say that I certainly do have sympathy for the people losing their homes in this "crisis," especially those with children. The problem here is that many folks financed a home with an ADJUSTABLE rate mortgage at what looked like a great interest rate at the time. Now, interest rates have gone up, and the lenders are ADJUSTING the ADJUSTABLE rates on these mortgages.
My wife and I purchased a home in April last year. As every homeowner knows, part of the process is shopping around for a mortgage. I remember speaking to the first bank I inquired with over the phone. Getting approved for the loan wasn't difficult, as my wife and I both have decent credit. The loan officer told me that we could get a fixed rate mortgage at 6.25% or an adjustable rate mortgage somewhere in the 4.5% ballpark. Being my first experience with this sort of loan, I responded something along the lines of "Adjustable as in the rate could increase in the future?" The reply, of course, was "Yes, but it could also go down." Some quick mental subtraction tells one that there is not much room for a 4.5% interest rate to decrease. On the other hand, there is quite a large expanse between 4.5% and 100% and beyond. Common sense reared it's ugly head and we went with a fixed rate. At the time, I didn't think that the decision was all that hard. Apparently, there are a large number of people who would disagree.
I've heard the "we didn't know any better" argument, but that doesn't to much for me. If you can't be bothered to do some research about the most important purchase of your lifetime, then you deserve what you get, says I. Spending a small fortune (to me) was scary. I wanted to find out everything I possibly could. A fast google search showed me that I could even get legal representation to help me decipher all of the small print, if I was willing to pay for it.
To summarize: If you're going to borrow a wheel barrow full of money, do some homework. In the end, nobody is responsible for what happens after you sign on the dotted line except for yourself.
Labels: Common Sense, Finance, Mortgage
posted by zebulonsmith @ 09:07
5 Comments
5 Comments:
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As much as people want to blame lenders, mortgage brokers, and appraisers (and never the borrowers) for the foreclosure "crisis", some of the blame lies at the feet of the government. The government has relaxed lending/underwriting standards to increase the number of people realizing the "American Dream" of home ownership who have no business owning homes. And then you have a push for lenders to lend in urban areas (we want everyone to realized the "American Dream"), but because of credit/income/location risks, the rates are higher. But wait, here is an adjustable rate mortgage product with this nice introductory rate ("I did not read what I signed so I did not realize that it couldn't adjust down, just up, or that it would ever even change at all"). Many brokers sell the adjustable rate as a band-aid, when you do A, B, and C your credit score will go up, then we can re-finance you into a fixed rate product (of course borrower never does A, B, or C, so credit stays same or gets worse and then he can't refinance and cant pay the increased payment and cant sell his over mortgaged piece of crap home and blames every one but himself).
The other big problem is 100% financing. Talk to your parents or grand parents who were buying houses in 50 years ago. They either saved until they had all the money to buy, or a large down payment. Now, in our quest to own every new consumer product in the world, no one saves anything and finances everything. Then when the financial situation changes, we can't possibly sell the house for what we owe.
Of course, there was so much investment money that it was nearly impossible NOT to find a mortgage product to fit anyone. Many irresponsible lenders who originated "stated income" or "no documentation" loans(just tell us what your income is, no need to actually produce pay stubs) and then wondered why the default rates were so high.
Plenty of blame to go around on this issue. Just no one will ever say that borrowers are irresponsible.
If you ever have legal questions regarding your mortgage or your rights as a consumer, feel free to give me a buzz. I can probably give you some good advice. I hope you researched your lender, and hope you used a local lender.
As someone that will be in the market for a house in the very near future, all I can say is...thank you all for the lower prices and interest rates. Best of luck!
the whole housing market is in a state of emergency. and it is everyones fault. I don't consider myself to be rich, but when i was shopping for a home the bank said i could easily afford a 250 thousand dollar home, and they would lend me up to 350 thousand. my jaw dropped to the floor when i heard that. I could never afford those kinds of loans. Banks need to start being realistic when giving out there money, and people need to think for a second before buying more house than they could afford. an adjustable rate is just insane, i got locked in at 5.5% and i don't believe they will go to much lower than that. Now is a good time to buy a house though.. i hear there are some good foreclosure sales!!
Personal responsibility is the hallmark of times gone by. I've learned financial responsibility the hard way and I'll be damned before I feel sorry for someone making more than me when they lose the house they couldn't afford in the first place.
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