Mortgage issues

[dkh0331]

[The Grim Reefer]

Originally posted by MarkS
That's great for you, but the majority of the population cannot afford to pay cash for a house. If that were not the case, then the mortgage industry would be a fraction of the size it currently is. In many parts of the country, the price for a mortgage is about the same as the rent on same size house. The problem is that the teaser rates, in many cases, mine included, were either no where on the mortgage form or written in legalese so that the borrower could not easily (or at all) understand what they were getting into. The problems that people are experiencing right now are mainly due to shady mortgage brokers that did not explain the contract to the customers. Few people ever dealt with the mortgage company directly. Once the borrower signs the mortgage contract, the broker gets paid. If the borrower defaults, they still get the money and the mortgage company is left with the bill. I have yet to read a legalese document that I could understand. I am a firm believer that legalese exists solely for the purpose of screwing those who cannot read it. There is no good, honest reason that a contract cannot be written in plain English.

In the case where a lender hid the terms of a loan, or at least didn't spell it out in the contract it should and probably will be on the lender but under the current law if the lender forgives a portion of the loan you have to treat it as income and pay the taxes on it.

And all in all I would rather have a house payment and still be able to work

[MarkS]

Originally posted by The Grim Reefer
Think about how the loans were marketed. Yes there are a lot of people who made stupid decisions for whatever reason but if you really look at this I think in better than 90% of the cases you are going to see people trying to live beyond their means. Otherwise they wouldn't be losing their home.

Maybe in many cases, but not here. I'm speaking from experience, not from the position of an uninformed observer. I almost fell into that trap. The broker never mentioned teaser rates or what the interest rate would balloon to, nor when it would happen. My credit sucks and there is no way I would qualify for anything short of a sub-prime mortgage without ponying up serious cash. The amount I would have payed a month, insurance, taxes and such included, was only about $200 more than what I am paying for my rental. That was well within my means. However, when the rate shot up by $300- $500 in a few years (in my case, about now), I would not have been able to afford it. Again, this was due to a broker that wanted my signature so they could get paid. They could care less that I could not afford the loan in a few years. By that time, they would have had their money for a few years.

For the record, I was presented with a contract, about eight pages long, ALL in legalese. I was not presented the contract until signing and there was no time to go over the contract once presented. They wanted my signature at that point. I'm a little more savvy than the average person and this situation stunk. I could easily see how someone would not feel uneasy about that situation, especially since they are excited about owning their first house. When you factor in that most people have never heard of a teaser rate and a broker that will not explain the contract, you get thousands (millions) of people suckered into something that they could not afford from the beginning. I'm all for personal accountability, but these people were scammed.

[Sk8r]

People who have the smarts to know they're not well-educated in finance are often vulnerable through their egos...especially if they're scared of the large sums of money being tossed about, and nervous. And too intimidated by the mortgage-speak to ask.
We went through the first-timer education program in WA where they promise you you can get a really low interest rate if, if, if---you complete this course and qualify. Hey, so it was free, we took the 6 hour, course, though I have bought 3 houses before this. TUrned out we didn't qualify---I thought not; but it was a good course, where it came to lectures from the home inspectors.

We were appalled by the situation of other couples. The course itself was good, but the lost-lamb trust these young couples had in the hard-sell on these 'great deal' type mortgages...like, they were scared, but they had nobody else to trust, and your realtor is working for you, right?

Hey, I'm no genius in math, far from it. But these young couples were being made to feel stupid if they didn't 'get' how this was just the neatest thing since sliced bread, and how they were so lucky to get this. In a couple of cases we talked turkey and said how we were NOT going with a flexible mortgage, and why, and got a good discussion going, but wow, the hard-sell some companies were doing to get these first-timers in, telling them it was all going to be good, oh, this is a solid company, you'll be fine...

Then we'd chime in with, "and then they sell your mortgage on..." and young eyes would get pretty wide. And we'd say, "Get it in writing. If it's not in the contract, it's not a deal." And: "What happens if the economy goes south?" These people, some of them, are so young they don't know that the stock market rises and falls, and how the interest rate is set and they really got shocked when we pointed out that home values can actually fall below the money owed on your mortgage.

Of all the things they have "Dummies" books for, there sure ought to be one for home finance or buying a house. I felt like an old gray lobo trying to coach Mary's flock of wide-eyed lambs, and I don't think I was too popular with the real estate agent trying to put on this dog and pony show...especially since her company was one of the ones that got hit hard in the crunch that came a few months later.

[Hattie B]

Originally posted by MarkS
That's great for you, but the majority of the population cannot afford to pay cash for a house.

I have to agree, good for you but where are you at?

500k plus is a small drop in the bucket for a fixer-uper where I live.

I have some friends that have sub-prime loans, I like MarkS said almost got on at the begining of the year but backed out at the last minute.

They are not going to lose their home but they are fully aware of the rising cost of their mortage.

One thing touted when I was looking to buy was the mortage people kept telling me it didn't matter about the loan becuase in a year or 2 just refi and it will all be OK.. That was pounded into me like you would not believe, I bet a lot of people just bought into that idea.

While I don't think its greed, some people would have never had the opportunity to even get in without the loan I think it has been more of the idea of actually getting a house to call ones own. That is a big thing, esp here where I live where so many people can not afford anything..

while I have to agree that some did buy something knowing they could not afford it I bet most thought a simple refi would solve everything..

I do agree its to bad for them and its no one elses fault fully but their own; no one forced them to buy it

[gtrestoration]

If you thought used cars salesman were bad, the mortgage business tops them all IMO.

All these people going back into rentals, all these homes turning into rentals, all these homes going back to the lender, won't be doing anything at all positive for the economy. IMO as "right" as I am I see some of these proposals for aid as the cheapest route at this point.

SteveU

[The Grim Reefer]

Originally posted by MarkS
Maybe in many cases, but not here. I'm speaking from experience, not from the position of an uninformed observer. I almost fell into that trap. The broker never mentioned teaser rates or what the interest rate would balloon to, nor when it would happen. My credit sucks and there is no way I would qualify for anything short of a sub-prime mortgage without ponying up serious cash. The amount I would have payed a month, insurance, taxes and such included, was only about $200 more than what I am paying for my rental. That was well within my means. However, when the rate shot up by $300- $500 in a few years (in my case, about now), I would not have been able to afford it. Again, this was due to a broker that wanted my signature so they could get paid. They could care less that I could not afford the loan in a few years. By that time, they would have had their money for a few years.

For the record, I was presented with a contract, about eight pages long, ALL in legalese. I was not presented the contract until signing and there was no time to go over the contract once presented. They wanted my signature at that point. I'm a little more savvy than the average person and this situation stunk. I could easily see how someone would not feel uneasy about that situation, especially since they are excited about owning their first house. When you factor in that most people have never heard of a teaser rate and a broker that will not explain the contract, you get thousands (millions) of people suckered into something that they could not afford from the beginning. I'm all for personal accountability, but these people were scammed.

I remember when we bought our first place. I was less than 3 years out of a Bankruptsy due to a divorce. This was before the ARM's got big but they were around. They tried to sell us on one and we didn't bite. It was spelled out pretty plain to us. If terms like introductory rate or adjustable rate are not in the contract I could see where a person could be scammed.

[Sk8r]

Oh, yeah, they talked about that re-fi to the crew of lost lambs. And of course, at the time, re-fi ads were all over the telly, so you'd have thought you could just dial up one of these guys anytime and have a refi in, oh, just as fast as computers could work.

Yep.

TANSTAAFL, as Mr. Heinlein put it. There Ain't No Such Thing As A Free Lunch...

If it's too good for your side, and you don't see how the other side is making a dime, it's time to figure his side out.

[MarkS]

Originally posted by Hattie B

I do agree its to bad for them and its no one elses fault fully but their own; no one forced them to buy it

Again, I repeat...

Originally posted by MarkS
I'm all for personal accountability, but these people were scammed.

In all other cases involving scammers, it is possible (not probable, but...) to get your money back through the court system due to their illegal actions. In this case, however, the people running the scam were the mortgage brokers who were acting well within the law. There is no recourse for those that got scammed. I feel that the law failed them and the government should step in to help. At the same time, the laws need to be updated to prevent brokers from doing this type of thing again and to give people in similar situations in the future a legal course of action.

[psychodave]

Option Arms, in my openion, are the cause of the current market. The Neg Am payment really messed things up for lots of people. There are alot of shady lenders and brokers who didnt edjucate their borrowers before sticking them into these high paying loans. Some of my loan officers were making 4 points on these...most of them are no longer with us...

The Neg Am, if you dont know, works like this...
you have 4 payment options to choose from every month, a great idea. You are able to choose the payment that fits your budget for that particular month. If your not going to be spending alot of money on anything else you can pay the 15 year fix or 30 year fix payment. If your planning on spending some cash for someones birthday or christmas you can pay the interest only payment..or if your in a really tight spot you pay the cheepest payment the Neg Am payment. The Neg Am payment was very appealing to the borrowers because they thought they were getting away with a $500 monthly payment on a $500,000 mortgage. What they didnt know was they were actually adding to that $500,000 every time they made the Neg Am payment. When the Neg Am payment is made the difference between it and the Interest only payment is added to the principal loan balance. Say your interest only payment was $1000 and your Neg Am was say $500, you would actually tack on $500 to your principal every time you made that payment.

Lots of people only made the Neg Am payment for the first year or two of the mortgages life untill it recast (adjusted). When it adjusted the Neg Am payment went away and the Interest only payment increased quite a bit not to mention the balance they origionaly borrowed increased by 5 - 10% so now they are paying 7+% on $525,000 - $550,000. Banks wont refinance at this point because they wont finance more than the house is worth, if you did 100% financing your facing foreclosure.

But Im no expert, im just a processor for a mortgage broker, this is just my openion...

[gtrestoration]

Originally posted by MarkS


For the record, I was presented with a contract, about eight pages long, ALL in legalese. I was not presented the contract until signing and there was no time to go over the contract once presented. They wanted my signature at that point.

If your situation was the same as ours I know what you mean. They set an appointment to come to your home. The day before or so you get this package of documents from Fedex and they charge you twice what it cost for that. I say wait, you're the one in such a hurry, not me, you pay for it.

They had to come out three times with new docs before I'd sign, poor girl. They only get paid per signature. They were all nice people, they're just not in the position to do anything but direct you to where to sign.

SteveU

[emilye2]

The good faith estimate is your friend....And if you can't say to these people, "thanks for a copy of this contract, I'll have my attorny look over it and get back to you." then run.

[The Grim Reefer]

Originally posted by Hattie B
I have to agree, good for you but where are you at?

500k plus is a small drop in the bucket for a fixer-uper where I live.

I have some friends that have sub-prime loans, I like MarkS said almost got on at the begining of the year but backed out at the last minute.

They are not going to lose their home but they are fully aware of the rising cost of their mortage.

One thing touted when I was looking to buy was the mortage people kept telling me it didn't matter about the loan becuase in a year or 2 just refi and it will all be OK.. That was pounded into me like you would not believe, I bet a lot of people just bought into that idea.

While I don't think its greed, some people would have never had the opportunity to even get in without the loan I think it has been more of the idea of actually getting a house to call ones own. That is a big thing, esp here where I live where so many people can not afford anything..

while I have to agree that some did buy something knowing they could not afford it I bet most thought a simple refi would solve everything..

I do agree its to bad for them and its no one elses fault fully but their own; no one forced them to buy it

California prices are nuts. I am part owner of a house in the 92707 zip code. The neighbors house just sold for 530K. I am in Aurora which is a suburb of Denver. that would have been maybe a 150K house around here. Of course California wages are a little better too

[psychodave]

Originally posted by gtrestoration
If your situation was the same as ours I know what you mean. They set an appointment to come to your home. The day before or so you get this package of documents from Fedex and they charge you twice what it cost for that. I say wait, you're the one in such a hurry, not me, you pay for it.

They had to come out three times with new docs before I'd sign, poor girl. They only get paid per signature. They were all nice people, they're just not in the position to do anything but direct you to where to sign.

SteveU

Notaries and escrow officers are more than capable of explaining the docs to you and what they mean, they can not force you to sign before you read your Deed of Trust, Note, TIL, GFE or other disclosures. If you signed with out reading you just put your self in a precarious position...

Most notaries are paid a flat fee per loan...in Ca anyway, im not familiar with realestate laws of other states.

[gtrestoration]

Notary, and two of the three we sat down with both told us it was per signature. If that's not true somehow that doesn't surprise me based on the rest of the experience.

They may have been able to answer the questions but they certainly couldn't resolve the issues I had with the contract. That's why they were sent back empty handed twice and the lender had to make some substantial changes to the docs before I'd sign.


SteveU

[Scuba_Dave]

My 1st house 10 years ago was $23,600
I put down 10%, my house payments were $300 a month I think
I could have bought a house for $100k
Instead I put a lot of sweat equity into the house
After living ther 6 years I sold it & walked away with about $130k in profit. My wife bought a Condo & had it for 8 years. We sold her condo & walked away with about the same money
We could have bought almost anyhouse we wanted between the $$ down & our salaries
Instead we bought a house about $120k below what our friends bought. Put the rest in the bank. Bought our dining room set, bought my F150, bought her a new car - 1/2 down

The rest went to construction, still ongoing
We still have money in the bank 4 years later
Nice security blanket to have

Bank offered us different rates, we could re-finance
Broker was messing around, we were going on vacation & he was pushing for what we didn't want.
Dropped him & went with another broker who coordinated everything & got a nice commission

We locked in at 5.25% & pay extra $$ each month

I really have no sympathy for people that extend over their abilities. When I bought my old house we had a girl who bought a big house.....and could never afford to go anywhere
Mean while I was going to the Caribbean 2x a year on vacation

If you can't afford it, don't buy it
If you can't afford it, get out

I'm tired of my tax money used to bail out idiots
30 years to buy a house......figure it out...its not that hard

We can afford this house on 1 salary, which is what we needed

[joeychitwood]

I am no financial genius, but I looked at the real estate "boom" several years ago and wondered how long it would be before the bottom fell out. Why is it that a Joe Schmoe like me can figure this out but the bankers and Feds cannot?

This artificial real estate boom points out, as usual, that nothing is free, and if it looks too good to be true, it probably is. No matter who gets bailed out, the borrowers or the lenders, we taxpayers are going to foot the bill, AS USUAL.

[gtrestoration]

Is the proposed legislation really any different than the Federal Reserve determining the cost of money? I know it's post contract but I'm not sure how many of these lenders will survive all the defaults given the current situation.

SteveU

[BrianD]

You can't fix stupid.

[McCrary]

Originally posted by crpeck


I hope my college student son is so appreciative.

Are you a Wildcat? My husband and I both went to U of A and met each other in Tucson.

Yea, I go to the University of Arizona and am studying molecular biology/molecular biophysics. I was at the business school, but dropped it to go with science, that decision cost me an extra 2 years in undergrad (I am still not sure if it was correct). But hopefully it will pay off, I just didn't feel that after 5 semesters I had learned anything valuable, so I decided to do something more challenging. I figure if I can do physics, calculus, chemistry and biology everything shouldb't be too bad in perspective. The only problem is that everyone around me has graduated or will soon. My girlfriend leaves for Africa in the summer and then she is going to apply to Med school, so hopefully she will be going to the U of A med school.

[gtrestoration]

Maybe not stupid but you can fix ignorance. I think the root of the problem is not with the buyer but with the lender. The push to fund these security backed loans was unbelievable. It might make some that aren't involved in one of these loans feel good to see some home buyers go down due to their "stupidity" but as the economy adjusts it will be taking no prisoners.

SteveU

[BrianD]

Market corrections happen every day. That is what makes a market-driven economy work. If you gamble that your home value and income will rise enough to cover future payments and you are wrong, you are no different than the stock market investor who thought ACME stock would never go down. I believe there were unscrupulous lenders out there, but the fact remains that people made a conscious choice to buy these homes using teaser rates. They didn't look at the price of the home - they looked at their monthly payment. Perhaps situations like this will force people to use common sense and stop abusing credit.

[The Grim Reefer]

I don't think (or at least can't imagine) people feeling good about someone losing their house. To me it is a matter of knowing where to draw the line as far as saving people from themselves. I really don't have a huge problem helping someone who bought a three bedroom one bath house keep their home when they took a chance on moving from renter to homeowner and got bit. It's those that went for the den and family room with wet bar, granit countertops and brick exterior I object to helping out.

[joeychitwood]

Originally posted by BrianD
Perhaps situations like this will force people to use common sense and stop abusing credit.

Don't hold your breath.

[joeychitwood]

Originally posted by The Grim Reefer
I really don't have a huge problem helping someone who bought a three bedroom one bath house keep their home when they took a chance on moving from renter to homeowner and got bit.

So do we as taxpayers make their house payments for them so they don't have to face the consequences of a bad financial decision?