This is our experience, and how we fell into the subprime market from which we are very near foreclosure. You tell me who is the victim:
In an issue of the Portland Oregonian in late 2001, there was a small 4-5 paragraph article buried in the last pages of the front part of the paper. It spoke of a high level security employee of US Bank that was gathering evidence to present to the FBI regarding US Bank account and Branch managers. Apparently, they were selling names of consumers who had accounts to certain Cinci, Ohio Consumer Finance Division?s loan officers. Aggressive sales tactics were employed to recruit potential loan applications in which somehow dummy accounts were established not to the benefit of the person applying for a loan, rather those who were behind the scheme.
The US Bank security person who uncovered this scheme never did submit her documentation to the FBI, because she apparently decided to suddenly retire, and conveniently was unavailable for comment on the story. It never went nowhere. I consider myself as one of the victims of the scheme here 6 years later still have not found any closure nor justice.
It is unfortunate because I had not learned of this article until 3 maybe even 4 years after it had appeared in the Oregonian. Had I known, perhaps the outcome that personally tore this family to shreds may have been avoided. There was an accounts manager at my local Scappoose, Oregon branch that pursued me to refinance to the point of being totally annoying, so much so that I would not even go into the branch, opting to either going to a different branch or banking through the ATM. The most extreme was one morning while at the ATM, this individual saw me and came outside to ATM to once again ?sign us up?.
Strange? Perhaps not except for the fact that it was during a torrential downpour.
The owner of the company my wife was consulting for had some issues with a competitor over patent rights or something along those lines, and decided to retire and dissolve the company. My wife, being tired of traveling and being away from home decided to go back to a firm on a salary basis, the consequence being a drastic reduction in income. That is not to mention the coinciding terrorist attacks of 9/11 and consequences that rippled through the economy that affected my business.
Finally, we succumbed to the pressure and gave permission to this accounts manager to forward our name to the Consumer Finance Division. Of course, we were investigating our options with our lenders and such, but none pursued us on a daily basis as did the loan officer from US Bank, promising this and promising that. The heavy handed sales tactics and pressure clouded our better sense, because we lost sight of all the problems we had at the local level branch level. Tellers posting to incorrect accounts resulting in bounced checks and overdrafts, I mean it was constant. If we are guilty of anything it is moving forward with US Bank on a refi, given all the problems we were already having.
It was after one of these ?mispostings? that I had gone to see the same accounts manager that doggedly pursued us, to correct the tellers mistakes and set our personal accounts correct. We walked through it, he saw the mistakes made and promised that it would be taken care of and to stop in tomorrow if it was not done yet. The following day nothing was corrected and so I stopped in and to amazement this accounts manager was gone for good. I was told that he transferred to a location closer to his home, which I found very odd because he was from a rural area, more so than Scappoose, and this was a considerable step up for him. Just like that, overnight, he was gone. This ?disappearing? act, I would come to learn over the years to come is a tactic used to keep consumers at bay. After discovering the article in the Oregonian, I went back through my records and checked for timeframe. Turns out that the day that the article was published was the same day I had met the accounts manager regarding the mispostings. Coincidence? It is one of those questions that never has been answered.
We were given assurances, verbally, time and again, that we were all approved for this refi and that was holding it up was the appraisal and if it would come in high enough. Once that was done, we would essentially be done in a couple of days. That was nothing more than deceit, lies and simply keeping us on the line of their hook. The appraisal was done and we were well above where it needed to be and we assured it would be wrapped up by Christmas of 2001. Christmas came and went with nothing done.
We were getting very concerned as estimated business taxes on my wifes consulting and my business we rapidly coming due. We were going fall 7800 dollars shy and part of the disbursements from the refi were going to cover that. It became apparent that this was going to drag through past the 15th of January and we were furious that all their promises had been unfulfilled, yet we had come this far and to start all over someplace else was just unthinkable at this point. Our loan officer suggested that we find someone to lend us the 7800 and that she would personally secure a note with that person to the disbursements funds, in essence guaranteeing payment back to this person.
I asked my mother in Cleveland Ohio and she agreed to lend the money, everything else was handled by the loan officer. She contacted my mother and explained that she would have some sort of document that would secure her name to the disbursement funds. As we are in Oregon, the funds needed to transfer via Western Union. This loan officer went as far as walking my mother step by step on how to do so. The note that guaranteed repayment that was promised never did arrive, nor for that matter did the refi.
People look at me when I tell that part of the story as if I am an idiot, a liar or a bad storyteller, and who is to blame them. Afterall is totally outlandish. Preposterous, absolutely so, but totally true. Is it in writing? Of course not, US Bank puts none of their promises in writing, only what they can screw you with, not what would screw them.
However, phone records and transference of fund records, and my mother don?t lie. We later came to find out that this scheme was concocted by the loan officers supervisor. I call that fraud.
Finally, on morning in mid February 2002, as we walking out the door to go and sign the paperwork finalizing the refi. We get phone call from our loan officer. She tells us that their has been a stipulation added that simply destroyed the whole deal. We were told that because of my wifes short time at new place of employment and my being unemployed suddenly had caused concern as to whether we should be loaned money to. Never was this even a concern to them prior. We later came to find out that it was a concern long ago and that they had farmed us out to other lenders and they found one in a place call Greenpointe, but never shared that information with us, as a matter of fact it was deliberately held from us. All the while we were being told everything was hunky dory.
The stipulation for approval is again something that people look at me as if I am idiot.
I am in Architecture and I designed and built our home. It sits on a slight downslope because of that there is a basement area that is known as a daylight basement. I designed it as such so that in the future it could be modified into living space. However, that would be under a separate building permit and was for all intensive purposes is deemed as nothing but a crawl area. US Bank and Greenpointe decided in their infinite wisdom that in order to get the refi we would now have to make the daylight basement livable.
In other words, we would have had to obtain a building permit, bring in rock and pour a slab over, and additionally insulate and drywall the walls at a cost of 15,000 ? 20,000 dollars. That did it that was the final straw, to which we walked away very, very angry. We felt like we were raped. On top of that our loan officer told us not to pay the mortgage payment to Washington Mutual, that she had it worked out with them with all these prior delays and that it was all taken care of. Na�ve our part? Absolutely it was, but this is their business, a consumer should be able to put trust in that. For that we were very very stupid.
In the early part of 2002 the lending practices were still rather strict and we found ourselves not being able to get a refi anywhere. No one would touch us because of a past 30 day on our mortgage that showed up on our credit report. It did not matter what the reason was.
Our intention to adjust our finances to our personal and economic changing times was destroyed. The stocks we held and the savings we had all withered away to keep pace with what had become financial chaos. I was determined to fight back because I believed in justice and truly believed that we mattered. I came to find out that we do not matter. I filed a complaint with the OCC, and they contacted me back asking me to send them all the info I had so they could review it and proceed further. They even told me to fax it as opposed to mailing my docs, as it would find its way quicker into their hands. I did that, on a Sunday evening. I faxed about 150 pages if not more, and the following day I called to ensure that it was received.
I was stunned when the gal on the side of the line admonished me for having the nerve and stupidty to fax that many documents. I asked them if they were going to review and she said that they do not have time to pour through that many pages and that they wrapped it all up with a cover letter and sent it to US Bank. As I understand it in a civil matter I am not obligated to provide the defendant with discovery. Any chance of that happening went right out the door when the agency designed to protect me as a consumer
Did just the opposite.
If you have ever missed a car payment then you know that the calls come daily if not 2 or 3 times, and that?s what my life became. A balancing act, paying the mortgage one month and skipping other ones and then the following month doing the opposite, all the while the credit report overall number divebombing. Being a one person office those calls came to that phone line. Every single I made it a point that I was going to find justice, and I called the 800 number of US Bank, never speaking to the same person twice, and being bounced all over the country to get nowhere. While at the same time I was also receiving phone calls from their collections department looking for the payment on a second that we had with them. I exaggerate not when I say that in a 1-1/2 year period I spoke with over one thousand different US Bank personnel, and the small handful that took an interest in my pleadings for help would disappear??be transferred. To this day, I am still appalled by that.
The day that the refi fell apart, and after we were done screaming at the loan officer she had faxed me a copy of a field review that was commissioned by US Bank, which is common practice, but nonetheless a document that is to be used in house and not privy to us, the loan applicant. Their was so much emotion that day that it did not occur to me until long after a statement that she had made to me, and that was that ?you did not get this from me?. In an effort to shorten an already very lengthy letter, what it came down to was that the person who did the field review was not licensed to appraise our particular zone or type of estate property, as we sit on 5 acres.
It took about a week of spouting off about the appraisal when all of a sudden, after months of getting nowhere, I suddenly find myself taking a call from The President of Consumer Finance. Which is just another long story ending in corporate America screwing the common man and getting away with it. I would love to share my whole story with anyone willing to listen.
51923 Mountain View Road
Scappoose, Oregon 97056
Mr. Dost - I'm afraid you've been misled again! All the legislation proposed and that OPB, Our Oregon, etc., are pushing would not have protected you a bit! US Bank is a federally chartered bank, and Oregon regulations would have no affect. A good mortgage broker could have saved you a lot of pain, but unfortunately these groups and the legislature want to put us out of business and make all Oregonian's victims of the federally chartered banks like WAMU, US Bank, Chase, BofA, etc., and their predatory ways. It's interesting that these lenders were leaders in sub-prime lending and purchasing sub-prime loans. I personally very sorry to hear of the tremendous pain you and your family have obviously felt in this process.
Amazing stuff,Thanks so much for this!This is very useful post for me. This will absolutely going to help me in my projects .
The notion that the state should somehow decide how much a person can afford to pay for housing is completely absurd. While they?re at it, perhaps the state should also decide if an individual or couple can afford to have another child or that new Lexus SUV in the driveway. Socialism anyone?
What about personal responsibility for one?s own financial situation? Unless it can be proven that a given lender misrepresented the terms of the loan or otherwise committed fraudulent acts to deceive the borrower, the ultimate responsibility for that loan still lies with the borrower. Neither lenders nor the government should be responsible for the stupidity of those who finds themselves in dire straits as a result of poor loans. I have very little sympathy for borrowers who did not fully understand the loan program they were entering into because they either didn?t do their homework, plan for a rainy day or blindly trusted their mortgage broker.
Unfortunately, the problems of the financially ignorant have become our collective problem as we watch our own home vales stagnate and even fall in some areas. But what?s the solution? The federal government?s current plan just delays the inevitable.
Maybe we should consider a 21st century reprise of the WPA. In exchange for taxpayer bail out of their loans, the debtors are conscripted into public service improving life for all Americans.
Personal Responsibility? What? How dare you? These borrower's have only been disclosed the terms of their loans a minimum of three times, applciation, submission for approval and at closing. Of course they don't know their terms.........
It seemed very obvious to us that we were being qualified for a much higher payment than we could afford. We know what we can afford and chose a house with a payment that was within our reach. When we were offered an adjustable rate we said "no thanks" and stuck with the 30 year fixed. We also read our loan documents carefully. When we lived in a city where we could not afford to buy - we rented. Maybe if people are not able to make smart choices in these areas there should be mandatory personal finance classes to take in high school to help them understand the complexities of loans, credit cards and savings. We may just be more conservative than most but I didn't want to take risks with homeownership.
To blame all mortgage brokers for the state of the housing and foreclosure
problems is just not correct. Yes, i am sure they are responsibile for a large percentage of the problems homeowners are experiencing today. As a tax
consultant, i see how american families manage their finances and how homeowner's refinance year after year and constantly take equity out of their homes and waste it boats, vacations, huge credit card debt, motorhomes and whatever else they can find to spend money on. These last few years its been a second source of income and been used just to keep up with ridicious standard of living they really cant pay for.
Mortgage brokers should be held accountable for what loan amounts are approved, based on the homeowners level of income.
Homeowners should be held accountable for poor financial management and not permitted to refinance yearly. To bail the public out of this mess without some sort of personal financial responsibility will just let them do this all over again the next time the economy booms. This situation has happen before. Does anyone remember the mid eighties????
Your comments on how the average american manages their debt is spot-on. Many people can afford more house than you think because they enjoy living simply and avoid debt. Some of the immigrant groups are good examples of this. BUT- holding brokers accountable for what loan amounts are approved is inappropriate. It's not our place to approve and if we get that power/responsiblity, watch out for fraud and discriminatory lending. The responsiblity for approval is with the lender. The real predatory lenders are evident by both the billions of dollars of profits and the billions of dollars of loss from inappropriate loans made. No broker in Oregon is close to these profits or losses. Go to New York, London, LosAngeles, etc., and find the real culprits in this credit "crisis".
Buying a home is part of the American Dream. It is one of the most important decisions most families will make in their lives. But this dream has lately become a nightmare for many families who have been misled by unprincipled creditors who include predatory terms in home loans. This practice has hurt not only the homeowners who lose their homes to foreclosure, but has also hurt the nation at large as we sense that lending practices have mutated into a yet another level of complexity and chicanery.
Senate Bill 1090 is a simple and straightforward attempt to ?...prohibit unfair, deceptive or abusive acts and practices associated with....making or servicing home loans?? The Bill does not allow the state to decide how much a person can afford to pay for housing. It is not taking over the lending industry. The Bill is not socialist; it is in fact as American as apple pie. Our nation has a rich history of trying to level the playing field in consumerism by requiring disclosure of basic facts. An example in the proposed legislation is requiring the lender to disclose the lowest interest rate available to a prospective home purchaser. (The problem with not disclosing the lowest interest rate is that a higher interest rate is charged and the lender pockets the ill-gotten gain.)
Congratulations to the Oregon Legislature for attempting to reign in unfair and deceptive lending practices that ultimately hurt all of us.
A final thought: it would be good to read the entire Senate Bill 1090 before making comments. Simply reading the Summary gives a skewed and inadequate basis for understanding the intent and reach of the proposed legislation.
Kate, my friend....
Senate Bill 1090 is not good for Oregon and does not address "unfair, deceptive or abusive acts and practices associated with....making or servicing home loans..." but is bad legislation proposed to make politicians and special interest groups look good.
It is appropriate for the legislature to "attempt to reign in unfair and deceptive lending practices that ultimately hurt alls of us". Unfortunately, SB1090 doesn't do this.
I've read SB1090, I've testified before Senate Committee's on SB1090. It is a path to discriminatory lending and a lack of options for the consumer. In fact, on the day I testified, it classified Fannie Mae's "My Community Mortgage", a first time home buyer program that has been a great benefit to communities in Oregon and accross the country as "Sub-Prime" and "High Cost".
What would be appropriate instead of rushed, politically expedient legislation, would be for all parties invited to the Governor's Work Group on Mortgage Lending to WORK TOGETHER to come to a reasonable solution to this situation. That way we could address the REAL issues affecting Oregonian's rather than harming all Oregonians in the interest of furthering someones political career and/or agenda.
I thought banks were in the business of making loans in order to make a profit. I am unclear as to how a bank or lender makes a profit when giving a loan that he/she knows will never be repaid. Can someone explain this?
To answer marybee's question, sometimes the people who sell the loan are not the same people who follow through on it.
For example, let's say you take out a $200,000 loan for a house. Using a handy dandy mortgage calculator, we see that a $200K loan at 5.75 percent interest over 30 years means a $1,167.15 a month payment which over that 30 years will net the lender $420,174.00, for a profit of $220,174.00.
That lender can then sell that loan to someone else. If the loan is worth $220,174.00 in profit, the lender can sell it to an investor for $250,000 for an instant $50,00 profit, and the buyer will make a $170,174.00 profit over the next 30 years.
But if the person who took out the loan defaults, the investor loses their investment.
This is one of the many things that has happened. Lenders were giving loans to people who were big credit risks and then bundling those loans together into giant securities packages and pawning them off onto investors.
The problem for the investors is that when they buy a mortgage backed security, they are too far removed from the origination loan to know the true risk of the securities they are buying. They rely on the seller's past performance and credit rating.
What happened in this current mess, though, is that a lot of brokers and lenders went off the reservation. They began to venture into areas they had not ventured into before.
The industry average of subprime loans prior to 2001 was 2 percent of a lender's portfolio. By the end of 2006, subprime loans made up 13 percent of their portfolios.
I think there are a lot of similarities to the S&L crisis. In the S&L crisis, investors hypnotized themselves into believing junk bonds were a lower risk than they really were. And in this mess, investors hypnotized themselves into believing subprime borrowers were a lower risk than they really are.
Under current laws, borrowers can be set up for failure. Banks are currently allowed to make loans to people that they KNOW they can't afford. When a bank does this they do indeed make a profit when the bank forecloses on the family. The bank has received mortgage payments, fees and then gets the house back to re-sell.
A bank loses money on a foreclosure. The last thing a bank wants is a foreclosure.
I have a hard time believing that. Why would they sell mortgages to people who can only afford the "teaser" rate and obviously can't afford the exploding ARM rate of $400-1,000 more per month? It's because the bank doesn't mind getting the house back at the expense of a family's dream.
If you think you can buy a $300,000 house for $500 a month, you are a fool and should learn how to use one of the many hundreds of no-brainer mortgage calculators available on the internet. Some people bought houses who had no business buying a house.
As for lenders, gee, you really shouldn't loan a guy a few hundred thousand bucks when his record shows he can't even make payments on his plasma TV. Instead of calculating whether the home buyer can pay the introductory $500 a month for three years, you should be checking to see if they can pay the full $2500 a month for 30 years.
No one is blameless here, and the people who screwed up shouldn't be protected. They need to feel the pain so the necessary lessons are learned.
Stop trying to regulate stupidity.
Would you make the same argument against "Lemon Laws" that protect consumers from unscrupulous car dealers selling a bad product? Selling someone a mortgage that they will not be able to afford in the long-term is selling them a bad product. Setting up a family for foreclosure in the future is often done by misrepresentation. Borrowers trust brokers to help them navigate the murky and confusing waters of the biggest financial decision a family will ever make. When brokers are not legally obligated to be forthright or to act in the best interest of the borrower, brokers will succumb to the bonuses they will be paid to bring people into loans they can't afford. That isn't fair and should be regulated.
If you were considering a 6 year loan for a $100,000 Rolls Royce and were told that for the first year, you would only have to pay ten dollars a month, would you be foolish enough to believe this was a good deal, and that you could afford to buy a Rolls Royce? Wouldn't you check to see what your payments would be after that first year?
That's a ridiculous argument steeped in hyperbole.
Should I have to bring a lawyer with me to get my taxes done? Should I bring a master mechanic with me to get my oil changed? Should I need a nutritionist to go to the grocery store with me? Point is, commerce does not work, hence the economy does not work, unless there is a mutual trust between buyer and seller. Because pure greed cannot achieve this balance, commerce needs to and is, regulated. The current mortgage crisis was created by mortgage lenders/banks who saw $$ signs and let greed get the better of them. The marketplace changed and they saw an opportunity to get rich 'without consequences' and they pounced. Personal responsibility, absolutley, but personal responsibility is no good unless it is matched with professional integrity, which is what has been lacking in the subprime mortagage business in recent years. The marketplace has changed, and we simply need the law to change with it.
I see the point of the "personal responsibility" argument. But lending is a profession that requires specialized information to carry out. I mean, it's not simple, is it? Reasonably intelligent people have trouble with all kinds of financial issues every day -- and if you say it's never happened to you, I just don't believe you.
The way the issue of balancing personal responsibility with access to specialized information is dealt with in other professional societies is to require licensing under very strict guidelines and auditing not by governmental organizations, but by the professional societies themselves -- who have every reason to maintain community trust.
For example, no one allows a person with a civil engineering degree to build a bridge unless he or she is a licensed professional engineer and has been accredited by the American Society of Civil Engineers.
It is totally reasonable to set up a non-governmental professional lenders society in order to deal with this problem -- after all, how many people have been taken in by this sort of scheme? Do we really think they are all irreconcilably stupid, or do we think they are honest people who wouldn't think twice about someone else's promises?
The financing system for homeowners is a system that has worked successfully for decades. In my opinion, it's unfair to single out one party as the culprit for corrupting the financing system since every party has been complicit in some way. Some prospective home buyers were lying on their mortgage application, banks were offering new, unorthodox loans with high LTV ratios, rating agencies were giving AAA ratings to packages of loans that they were brokering to investors (a conflict of interest) and of course many mortgage brokers and real estate agents were making promises to home buyers that could only be true if home prices continued to appreciate at a fantastic rate.
How do you assign blame to a problem where every link in the financing chain is guilty in some way? I would think the best protection for a home buyer would be their own personal due diligence. If you don't understand the financing terms that you're agreeing to, then get an impartial financial consultant who can.
Can someone explain the benefit (or not) of refinancing? People talk about it like it is free money, but there is no such thing. Where is the money coming from? Why would someone do this? My understanding is that the value of the home has gone up, you're only paying for the cost of the home when you bought it, and there is an understanding that when you sell it you'll get more because the value has gone up.
But what if the value goes down when you sell?
Basically, how does the bank account for that money you took out in the refinancing?
To answer jensmith's question, refinancing has advantages and disadvantages. One of the advantages is that when you see interest rates dropping, you can refinance for a lower interest rate than you originally had, and see your monthly payment go down. Be aware, though, that there are finance charges added onto your balance.
It is best to get a fixed rate loan. Many people fell for option ARM loans with low introductory rates. And some of those people did not realize they were in a negative amortization loan. If you have a Pick A Payment loan, there are three or four options. You can pay the minimum amount, which doesn't even cover the interest owed, which means your balance increases. That is the negative amortization part. You owe more and more as time goes by when you make only the minimum payment. Eventually, your balance will reach a preset limit, at which time you will no longer be allowed to make the minimum payment and you will see you monthly payment go up substantially.
The second option is to pay interest only, in which case your principal doesn't change.
The third option is one that pays the interest and a small amount of the principal which is the way non-option loans work.
Sometimes there is a fourth option which accelerates the rate at which you pay down the principal.
One of the other pitfalls people fell into was taking out a home equity loan or home equity line of credit (HELOC). Because real estate values were going up, people were seeing the value of their own house going up, and then were taking out loans based on this increase in equity.
For example, say you bought a house for $200,000. A couple years go by and you discover your house is now worth $275,000. A HELOC is when your bank opens up a $75,000 line of credit based on that increase in value. At this point, people go out and buy that plasma TV they always wanted, or a shiny new car, or pay a college tuition. Whatever.
Now that home values are dropping, you may discover that you can't get $275,000 for your house any more. So even if you somehow managed to sell your house in this tight market, you won't be able to pay off all the money you owe.
Finally, many people who took out option ARM loans were told they could refinance later before the introductory period ran out and their payments went up. What a lot of those people found out was that they could not qualify for a refinance loan, so now they are stuck with the consequences of the option ARM loan resetting to a much higher payment.
Portland Housing Center is an excellent resource for learning how to buy a home. They help you learn how to improve your credit (if you need to), navigate the sea of confusing (explain terms) and they help you find resources. Whether you're low income or just confused by the whole process, they really help break it down and make home ownership (yes, the American dream) accessible to many people.
They are also well aware of the mortgage deals that didn't make info as clear as the companies could have (that's my take on the root of the situation) and they help people avoid that situation.
Mortgage brokers are at fault for making scrupulous loans, but we should not discount the responsibility that lies with the signer of the loan. They were taking out ARM loans, which were no money down, after 2 years, ballooning interest rates and a 5 year pre payment penalty. I find that many borrowers wanted to make a quick buck flipping a house within that two year period.
I see these forclosures as a good thing because housing prices that are over inflated will come down to a more manageable level. This will spur home ownership that is sound, instead of one built on speculation. You can't buy a house with no money down. We all know, things that appear to good to be true usually are and nothing in life comes for free. These people have learned a hard but valuable lesson. It is one that every american should learn, and that is to live within our economic means.
Sure it sucks people are losing their homes, but I don't feel sorry for someone who has over extended themselves to simply "keep up with the Jones'." Maybe they shouldn't have tried to buy a house they can't afford or maybe the borrowers should have read or had a lawyer read the terms of the contract.
This same thing happend to me as your first caller: Borrowed on inherited home, 'E-Z' Equity laon, with 5-year pre-pay penalty ($50k) hidden in contract; lost job of 18 years, no NEW JOB TO EQUAL PAYMENT, sold home for fair market price BUT all increase in equity went to fees, costs of escrow, ect., etc....
A setup to scoop-up homes from folks over 50.....
-The guest at the beginning stated lenders hide the prepayment penalty in paperwork. It's in the Note, the Note is 2-3 pages. Why would you not read the one document that outlines the terms of your loan? There is also a prepayment penalty rider attached to the Note.
-Remember back a couple years, everyone was driven by rate? Their neighbor got a 6.99%, so they demanded the same- maybe that's why they took out a low intereste ARM, not because they were misled by the broker.
-These "victims" created higher demand for housing by taking loans out that they couldn't afford, driving up home prices. Why should the gov't bail them out... I'm a person that realized I couldn't keep up with these home prices, so I didnt buy- I'M THE VICTIM!!!
-This is not predatory lending, this is predatory borrowing.
I am sure that there were borrowers that knew what they were doing, but most people are not educated about the home buying process. My husband and I have decided to be smart and so we took a home buying course so we won't get trapped. Maybe we need to require people to be educated before they buy a home, especially if it is their first time. I also feel that brokers need to be responsible. A house is probably the biggest purchase someone will make in their life time and people shouldn't have to worry about being swindled by their mortgage broker.
P.S. I am a screen reader user and I had to use a sighted person to register to the site. Please look into having an audio option for your visual capture to prove someone is not a robot. Also I couldn't figure out how to start a post, only reply to one.
I am a small time real estate investor and as a result have had many real estate loans. Many times I have been offered more than I can afford but have always borrowed only as much as I can reasonably repay.
What I have not heard in any discussions, local or national, is the role of the title company, a kind of safety valve. On each and every loan I have ever had the escrow officer at the title company has discussed the terms of the loan with me to make sure I understand what I am signing. I find it hard to believe that so many borrowers are innocent victims of the loan business which is not to say that there is not a slimy underbelly to the mortgage industry.
Too many borrowers have taken loans they cannot afford and have used their homes as a personal ATM card. I know a couple who are in their 60's, have lived in their home for 35 years and have a mortgage that is staggering, having pulled so much of their equity out of it to buy "stuff".
It is my opinion that the mortgage loan crisis is a result of a harmonic convergence of greed by both lenders and borrowers.
A noble concept, but i fear that would be an assumption of liability by the title company - wouldn't the attorneys love that!?
I also suspect the title companies are not hiring counselors, but closers.
A better solution would be to require the banks to hold their loans until the balloon comes due. Then see how many loans they make.
Seems as everyone is searching for a simple answer to a complex solution. Let me suggest individual responsibility is a beginning. Couple that with FULL disclosure of ALL financial issues, who is the end owner of the loan, and a healthy dose of skepticism on the part of the buyer.
Quite simply, the brokers are not working for you. Read the chapter on real estate brokers in "Freakonomics" - very enlightning.
As long as we have people who want everything for next to nothing, there will be people willing to sell it to you...
While acknowledging the complexity of the issue and personal accountability, there are certainly some holes in the system and some very dubious practices that need shoring up. Here is our example of predatory practices.
We bought our house 2 1/2 years ago. We approached a mortgage broker for preapproval and discussed options. We only discussed 30 year fixed loans. We had done our research and knew we were staying well within our means. They said they would send out paperwork for us to complete. But when the paperwork arrived in the mail, when we started reading the details, what they had sent us related to a 30 year variable rate mortgage with some very interesting penalties built in. Needless to say, we had no more dealings with that institution. But it required some knowledge on our part and a certain cynicism to recognize the switch.
Loretta, SE Portland
I'm a student, and as such don't have any direct experience with these loans. But I am worried whenever a phrase such as "people don't understand what they're getting into" is used. It might be true in some instances that people who take out these loans do not fully understand all aspects of the arrangement due to lack of transparency or misguidance by predatory lenders. But saying that generally is a contentious statement, because it implies that people are stupid when it comes to finance, which is going to be met by some scorn by free market conservatives/libertarians. Using that sort of argument is going to make this issue more divisive, in my opinion.
In general people in the US are indeed "stupid when it comes to finance" - there is no basic financial education in our schools.
Ask your mortgage industry guest about YSP (Yield Spread Premium). The incentives for Mortgage brokers were all wrong. They weren't rewarded by having a loan paid back, they were rewarded by convincing people to borrow more money with bizarre loans (like interest only loans).
Ah, just saw this! I would have credited you if I'd read it in time. The answer did yield the most interesting quote of the show: "The cheapest loan for the client is the one that the client chooses."
Indeed, that was a telling response from the mortgage guy. He didn't seem to want to talk about YSP.
Here's a mortgage guy who will talk about YSP all day long. The "P" stands from Premium, and once my clients hear about it they almost ALWays choose to let me be paid this way, since overall, it often times can be cheaper overall to pay a higher rate and lower fees. The key is the lower fee's. If your broker isn't giving you a better deal on fee's then you should go somewhere else. By the way, mortgage brokers are the only originators who have to disclose this. Mortgage bankers and bankers get "service release premiums" which are their equivalent of a YSP, and they don't disclose them. Call me some time, and I'll be happy to give you a thorough explanation of YSP's.
I'll also add that the vast majority of borrowers have/had no idea that anything like YSP existed. Basically they were kickbacks for getting the borrower to accept higher interest rates or terms that were not beneficial for the borrower.
I had a mortgage broker last year tell me that a lower interest rate wasn't important, that the whole "deal" was the most important (keeping the monthly payment low). Fortunately I did not buy then (and haven't since). At the time I had no idea about YSP kickbacks, but I suspect that broker was trying to get one.
These tricks for issuing loans to lower income families and individuals are reminicent to the low income housing scandal in the 70's and early 80's that involved FHA and HUD. Does you guest see any similarities and similar solutions?
On a daily basis I am bombarded with decieving loan information in the form of cleverly disguised mailings asking me to contact someone immediately because my current mortgage is at risk. They make it seem like you're going to lose your house if you don't call "immediately!". These tactics suggests that the people behind these mortgages are trying to take advantage of people who do not understand complicated mortgage process. I consider this form of loan recuruitment misleading and fraudulent, and should be illegal.
I've wondered what would happen if I called them as they are asking and acted like I didn't know anything about the process. How bad would they take advantage of me. I wonder how many people fall for these tactics. I believe that the majority of loan originators slither, so if find a good one, stick with them.
I personally have benefitted from a banks carefree lending on a "stated income," but I was very aware of the risks of my commitment, and extremely convinced of my job security.
Risky mortgage options do have their place, and can be useful, but they should not be forced on people using misleading advertisements.
And what is up with title insurance? It makes refinancing so much more expensive. Seems like a racket.
Getting into a home is a gamble?! (as your current caller suggests)
That's the whole problem right now. People look at housing as a casino instead of a place to live.
I'm someone who benefited from a "creative" loan, or perhaps more accurately, from a creative broker who specialized in helping people with unconventional financial histories get mortgages.
12 years ago, as a single woman just divorced, I set out to buy my first house. I had a successful though young business and I made enough money to pay for the house my real estate agent and I had selected. However, no conventional banks would even consider me for a loan. I was only eligible to apply for a "no stated income" loan. In addition, I had to pay 40% down and accept a 3 year adjustable rate mortgage.
Fortunately after 3 years I was able to refinance into a fixed rate mortgage. It was easier to get a loan at that time because (I think) it was my second loan. Also I may have benefited from a more permissive lending environment (about year 2000). I still happily live in and run my business from my home.
I was very lucky that my real estate agent referred me to a broker who specialized in "creative" loans. As a self-employed person, I fear I would never be able to buy my house today.
I haven't seen this issue addressed yet, but it is very difficult for a self employed person to be qualified for a loan--often impossible. In a future more regulated environment, will it be easier for people like me?
Just one last thing: even though my loan was a "no stated income" type (meaning my self employed income was of no value to the lender), within the last, most stressful 24 hours before approval, the bank suddenly asked me to provide a complete business credit history for them, and they gave me 3 hours to do it. I will never know whether that affected my ability to buy my house or not.
Thanks for the discussion.
I think it was that 40% down that did the trick for you, urban dweller. That meant you had a personal investment that you were ponying up. Most of the subprime loans that are such a mess these days had no money down.
It's interesting to note that the mortgage industry does not use generally accepted accounting principals for analyzing self employed peoples income. This further penalizes the self-employed. Oh well, I guess that means you will find it more and more difficult to get financing as a self employed person. Our Oregon and other groups seem to be anti self employed, anti small business.....
I had a wonderful experience with my mortgage lender. She really respected my finances and only approved me for a loan that I could afford. I felt that someone was on my side in a large and confusing first time home purchases experience. My lenders common sense and care for me educated me on respecting my personal finances. When I purchased my home and only spent a minimum amount of what was awarded my lender called to congratulate me on making a wise decision to not spend beyond my means. I truly feel lenders should help the public to make the best decision for their futures.-Stephenie
I wonder why everyone points to mortgage brokers, when it is very well known that BANKS are the real culprit, even Angela Martin and the state senator who was on acknowledge that Washington Mutual would not be affected by ANY state law, and neither would Wells Fargo and all other major banks, all of whom have wholly owned subsidiaries that have been proven to have provided the vast majority of these ARM?s. If people believe ARM?s and pre-payment penalties are the problem, why not just outlaw those? Much simpler solution.
Also, asking someone to determine if I can afford something reminds me a lot of fascism. It doesn?t sound like Angela Martin is AT ALL interested in helping home owners, it sounds like she wants to help rich, WHITE home owners. As a minority who does NOT own a home, everything she has said seems to limit my ability to eventually purchase a home.
It is a bad idea to rely on information provided by someone who stands to make money off you.
I could not agree more!
Sure banks deserve some of the blame here, but the incentives for brokers was all wrong. In some sense the whole system got out of whack in the last 10 years when we moved to Wall St. as the main source of money. Mortgages were sliced and diced and put into complex debt instruments that were sold by Wall St. We completely lost the connection between the source of money and the borrower. In many cases those who bought those debt instruments were also misled. So if you want to assign ultimate responsibility it probably goes to Wall St. however there's plenty of blame to go around for this mortgage mess: brokers, realtors, Wall St., bankers, uneducated borrowers.
There are many many well documented instances of mortgage brokers fudging the income numbers of borrowers to make it look like they made more than they really did. Why? Because the broker gets a commission for every loan made. The incentives were all wrong. Brokers were also getting YSP (see above) which were basically kickbacks to the broker for convincing the borrower to take a higher interest rate.
The whole industry became corrupt in the last 10 years or so as greed took over and the federal government shirked their regulator role and looked the other way. Now the day of reckoning is here and the whole mortgage system is falling apart - GOOD RIDDANCE!
Angela Martin and her friends are anti-fair housing. Giving the originator responsibility leads us to the slippery slope that results in discrimination. By the way, ARM's aren't the problem. We have a long history of them being good products. Bad ARM's are the problem. And you are right, WAMU, Bof A, Wells Fargo, Chase, etc.,etc. are all NOT AFFECTED by any Oregon legislation due to the Watters/Wachovia case and they ALL owned divisions that did the MAJORITY OF SUB-PRIME loans.
As a member of a religious minority, I strongly feel that the legislation proposed by groups like Angela Martins are extremely dangerous.
The home ownership question can be resolved if people talk with their CPA before they sign papers.
There is an inherent conflict of interest with the loan originators and the person applying for the loan. There should be a law that requires truth in lending which specifies the lenders are required to disclose all loan options and find the least expensive option for the client. The loan business is out to enrich itself at the expense of others. Lets get the conflict of interest out of the business.
AT WHAT POINT IN THE PROCESS will the disclosure(s) by the mortgage brokers be required by the proposed legislation? It must be at the beginning of the discussions. At the closing would be far too late. Few home buyers will walk away from a loan after running the gauntlet of the buying and financing process. I think most who get to the finish line (the signing of the closing papers) will swallow just about any surprises at that point. (And there are too many papers to be able to read them all during that procedure/ritual.)
And what recourse/enforcement processes will be available to the borrowers to report violations of these requirements if the legislation is passed and the industry personnel violate them?
INTEREST RATE, INTEREST RATE, INTEREST RATE.......that is the only issue of relevancy to prevent future foreclosure for those that currently are facing it. A family facing foreclosure has a credit rating that is essentially very bad which means that they are not able to refi. It is not a question of being able to afford the home as much as it is being offered a decent interest rate. Interest rate is everything and the credit ratings market is the destroyer here and needs to be addressed.
The basis on whether a person gets a loan or not and the interest at which it is given is 100% credit rating based. You want to stop foreclosures and the fix the economy, than throw out the credit rating system and let everyone get the same rate of interest.
I think your suggestion would actually increase foreclosures. If everyone had to be given exactly the same rate, then people with slightly bad credit would not be given loans so there would be fewer buyers. More people who need to sell would only have the option of walking away from their mortgage if they could not find a buyer.
Higher rates for weaker or simply unproven buyers makes sense. Higher reward (to the lender) for the higher risk of lending to a buyer who has a greater than average chance of being unable to pay back the loan.
Oft times, many of us feel really uncomfortable admitting that we have made a mistake or a poor decision and consequently look to pass along all or part of the responsibility to another.
I do believe that the ULTIMATE and PRIMARY responsibility for ANY financial decision lies with the individual/family/corporation choosing the transaction. Certainly it is a difficult journey especially if one is not previously well-educated within the subject. However, all of us can either choose to learn the processes or take a risk in 'outsourcing' the expertise to another.
Remember - many 'investments' are NOT guaranteed to provide a positive return!
Additional legislation will probably simply cause those with 'predatory' or 'poor character' to find other loopholes within which to operate. It also allows this shifting of poor personal-decision making to the intangible entity known as 'government'!
The BEST advice that we the public can take from the government and consumer advocate groupe is to become more savy with regards to any financial decision. Ratings, warnings, 'unscrupulous' flags, etc... which the community uses in many transactions within life - are really as far as the government should become involved.
Bottom line - advocate education and encourage 'golden-rule' operating endeavors.
Regarding SB 1090-9:
Much of the harm that exists today is due to dangerous loan products entering the marketplace. Fortunately, many of these products no longer exist. But if they did exist or should the return, the State will be ineffective in regulating the products because they are ?manufactured? by federal institutions (not mortgage brokers) and they will continue to be offered by these entities that are beyond the State?s control.
This bill attempts to fix a problem that the State can?t fix. To make matters worse, this bill will introduce a major problem that doesn?t currently exist.
Currently, mortgage brokers don?t improperly discriminate against protected classes of borrowers. Not only is there no financial incentive to do so, but just as importantly brokers don?t approve or deny loans.
Under the bill, mortgage brokers must rely on their own experiences and beliefs in making a decision to extend or deny credit. The result would be catastrophic: It is well established that discrimination can be so subtle that even decision makers with good intent fall prey to its insidious influences. This is one reason why prima fascia discrimination cases can be made on discriminatory patterns as well as practices.
Good intended mortgage brokers won?t be able to ensure that discrimination doesn?t happen. They don?t have the training, nor do they have the resources to monitor behaviors and results. And best efforts from such brokers still results in significant liability that their decisions will be challenged.
Mortgage brokers with bad intent will now be able to introduce discrimination into our market place because our current objective lending process will be converted into a subjective one.
In short, SB 1090 is very harmful, not helpful, during a time when the health of our Oregon economy and housing market is most at risk.
Mark Peterson, President
Western Mortgage Brokers, Inc.
1551 Pearl Street
Eugene OR 97401
HERE ARE SOME SOLUTIONS:
1) The mortgage broker is in a position of confidence, a fiduciary position, with respect to the borrower because she is always a layman and has no one else to trust but the broker to give her advice. The broker is like an insurance salesman or a laywer, the borker has to get informed consent from the buyer before engaging in complicated money lending deals -- and that means that a trusted financier who the buyer selects without the knowledge of the broker gets to give advice;
2) Because NOBODY can predict the future, nobody should be able to get, or give, today's money based on tomorrow's conditions. Stock brokers will tell you that kind of investing (called futures) is not for the layman. The variable rate mortgage (ARM) is clearly usury (abusive and preditory practice) and should be re-declared as such, and forbidden by law -- when you sign the contract, you should be able to rely on it. Lending the basis of Character assessment will always be forbidden because it is a rascist scheme. Character is not at stake, one's ability to pay over time is.
3) There should be no pre-payment penalty, again that is clearly usury - if the lender can't stand the heat, get out of the kitchen.
4) The maker of the loan (the bank or other entity) should only be allowed to offer loans at one rate, or to lower the rate after negotiating with the borower!
5) Holder in due course practice must be forbidden unless the new holder guarentees the original contract will be abided by.
6) Special loan auditors should be employed by the government to make sure the laws are obeyed. Just like any ordinary, and non-complex law is policed. It is only common sense. You want safety, you have to employ the cops.
7) Bankruptcy should exclude the homestead from the estate -- that means that if you have to declare bankruptcy, you don't lose your home. If can keep the cat, dog, a cow and two guns, you ought to be able to keep your home and means of livelihood.
8)One more thing, if the lender does not let you take the contract home to study it and to ask your financial specialist about it, giving you a cooling off period, DO NOT SIGN IT!
I'd like to respectfully respond to a few of your comments.
2) The variable rate mortgage is clarly abusive and preditory practice.
What would you say in the case where interest rates are falling? Shall you be mandated to lock in a high rate for 30 years?
3 and 4) How do you respond to banks who lend money for 30 year terms and pay depositors based on those rates, when rates are falling and all the borrowers want to refinance? Shall the bank be locked in to that rate without any assurance by the borrower?
When banks sell loans to Wall St., in order to raise money to make more loans, shall the investors have no protection against prepayment?
6) What cost is assumed by your auditors? Who pays that cost? What is your recourse if an auditor tells you you can't afford a loan, but you want it anyway?
There are good reason to take a loan that might ultimately turn out to be a bad idea. What needs to happen is for everyone to learn in high school how to compare loans and when a non-standard loan might actually be in your best interest. A low teaser rate could be just the ticket for someone who knows they will be moving in a few years or that the family income will increase dramatically. Maybe a stay at home mom will be returning to work in 2 years so that even if the loan cannot be refinanced to a lower rate the higher payments could be managed. Buyers need to take responsibility. Brokers need to cover all possibilities with buyers so they can make intelligent choices, but the state should not mandate specific loans.
There should be a financial literacy requirement for a high school diploma. Understanding of how credit cards, car loans and mortgage loans work is essential.
For now, "the market" has solved the problem. When lenders anticipated increasing prices, getting a home back in a foreclosure was not a problem. With stable or decreasing prices, they will not be taking possession of an asset that has increased 30% in value so they just will not make risky (to them) loans.
Eventually the market will turn again. Perhaps by then a new generation of buyers will be better educated and will not select loans that are not in their own best interest.
The loans that we are speaking of were never intended to be a permanent fix for anyone. Some people used them wisely to buy a home and then got out while the getting was good. Others used them to band-aid their precarious financial position for a couple more years. Bankruptcy or foreclosure now or then with or without these loans is just as bad. How did they end up in this situation? Because of the loan? Or was it from making other choices like that new car or boat, sending their kids to schools they could ill-afford, etc.? The loans themselves are not at fault.
Mortgage market conditions are already taking care of "consumer education" and "enforcement". People are hearing about their neighbors lack of good judgment. Owners of mortgage companies (a friend of mine) have to sign commitments to buy back any bad loans as of a year ago. My friend in the mortgage industry scrutinizes his clients pretty well...me being one of them. If he thinks that he will have to make the loan good by paying off the bank, he won't put a client in a loan. He also has incentive to review all the work done by employees in his office. What more could you ask for?
Foreclosures, while having risen in Oregon, are not out of control because Oregonians are more intelligent and cautious than those in other states. Sub-prime was never a major part of our market. Adding laws in Oregon because someone in Nevada got burned is a bad idea. Our mortgage brokers are already HEAVILY policed by the State of Oregon's Division of Corporate Securities and Finance. The legislature should just stay out of it. They have been trying for fifteen years to get the schools right and we are still waiting. Why would we trust the legislature to understand mortgage markets (something that they don't work with) when they can't fix schools where they spent 12-16 years of their lives?
My fianc� and I are in the process of buying our first home right now. Our Real Estate agent gave us some very smart advice, which has been very helpful. Essentially, what you do is pay yourself: you set up a separate savings account, and each month, pay into it what you have been told that you can afford on a mortgage each month (or what you think you can afford if you have not already met with a Mortgage Broker). After a few months, are you feeling crunched? Are you having to cut into your savings to make ends meet? Or do you still feel that you have plenty of money to meet other expenses, and maybe even some left over for your regular savings? This experiment has been VERY informative to us during this process! If you are a first time home buyer, or someone looking to move up to a more expensive home (and therefore a more expensive monthly mortgage payment), I highly recommend that you try this!
That's a great idea. Though to be realistic you should do this for at least a year - emergencies come up at different times.
Actually, come to think of it since we're getting back to sane lending standards it means at least 10 or 20% down so this is the way you'll need to save up for your downpayment anyway.
Yeah, we are going to use the money from this experiment for that! So, it ends up being a double benefit: you find out if you can spare the money for the loan payment, and get a fund to put toward your downpayment. And certainly, the longer you do this experiment, the better!
We have been lucky in that the amount we thought we could afford has left us plenty to work with, even with a couple of emergencies that have come up over the last couple months, we have not felt crunched, so we think this is a good sign that we will avoid getting ourselves into something we cannot actually handle.
Interesting topic. I wish I hadn?t missed the first half-hour of the program.
I?ve been involved in the real estate industry for the past 30 years as a Realtor, Loan Originator, and the last nineteen years as a Mortgage Broker. When I began originating loans in 1984 for a large east-coast bank, the mortgage business was very conservative with mainly fixed rate products for borrowers that fit a limited number of qualifications. We used a single-page application with two or three pages of disclosures. Over the years, more loan products were offered by the lending institutions in order to help more people become homeowners. Later, sub-prime loans were entered in the mix, which was not necessarily a bad thing. We?re now up to a four-page application with 10-15 pages of disclosures per loan file. Mortgages are definitely more complex these days.
In order to keep my customers informed, I wrote a blog in January explaining, in plain English, my views on the current mortgage crisis. Feel free to read it: http://herbmcd.blogspot.com/2008_01_01_archive.html Admittedly, it?s a simplistic approach to a very complex problem, but I think it gives a good overview to what happened.
No one will argue that foreclosures are on the rise in Oregon, and several legislative bills have been introduced in an effort to keep this mortgage crisis from repeating itself. But, in actuality, the market is taking care of this problem itself. These bad loans have all but disappeared (as have many of the mortgage companies that offered them) so we, as loan originators don?t have many of them to offer to anyone, which is fine with me. I would also suspect that the mortgage brokers that made their living from making these bad loans are, today, either struggling greatly to make a living or have gotten out of the business all together.
But of the legislative bills being discussed this month, Senate Bill 1090 is particularly bad and it needs to die. There is too much wrong with it to list here and keep this comment under 500 words, but Shane did a good job in explaining those problems this morning. The bottom line is this: it?s not good for mortgage brokers or anyone else. While some would have you believe that mortgage brokers are all Big Bad Wolves, the truth is that we offer a great service by giving the consumer good options in trying to find the best mortgage for his/her situation; and many, many people have benefitted from our hard work. SB 1090 will seriously hamper our ability to continue this same great service.
I could tell that the woman that took part in today?s discussion (was her name Nancy?) is very passionate about fixing the mortgage problems, so she supports this bill. But this bill is not the answer to today?s problems. I believe that, with time, a much better bill could be written to ward off a similar crisis in the future. Let?s not rush SB 1090 through the legislature only to be required to fix it later. Let?s do it right the first time.
Premium Home Mortgage Co
It's interesting to me that the legislature appears to be against fair housing. I am appalled at the short sightedness of the consumer advocacy groups and legislators when it comes to fair housing. Separating the loan originator (or broker, if appropriate) from the decision making process has been done historically for two reasons. Number 1 is to protect the lender from bad decisions and/or fraud. Number 2 is to avoid fair housing violations. Putting the lending decision in an originators/broker's hand starts us on the slippery slope towards discrimination. I for one, believe all Oregonians should have access to home ownership regardless of race, sex, marital status, religion, etc.
mark seibold wrote:
Your news is a little too little, a litle too late- What about those of us who were foreclosed on already and evicted as I was? I was also laughed out of bankruptcy court- The judge declared that I would receive a reimbursement of my filing fees then they refused to reimburse. I lost my home of 20 years that I designed and built, due to Washington Mutual changed my secure home mortgage loan to an equity line of credit at interest only payments to the bank- I lost $100,000 in equity. Will your senate act recoup my losses? Replace my home? I spoke on local public radio a few days ago as the first call-in about my situation with the bank. OPB Think Out Loud 9AM on 91.5FM KOPB. *see archived show online to listen. >
cell > 503 753 3811
cc: Gordon Smith, US Senator of Oregon
cc: Ron Wyden, US Senator of Oregon
cc: Earl Blumenauer, District Representative, Oregon
cc: Better Business Bureau
Take Action: Tell Your Senator to Support the Foreclosure Prevention Act Take Action!
Recent financial losses on Wall Street and future foreclosure projections have generated much attention and concern. As early as Tuesday, February 26th, the Senate could take up S. 2636, ?The Foreclosure Prevention Act,? which would provide strong, comprehensive legislative remedies to the current foreclosure crisis by providing greater resources for foreclosure counseling, allowing bankruptcy judges to modify loan terms for principle residences, and extending tax-exempt bonds to be used to refinance subprime loans.
Take Action: Email your Senator and urge them to support S. 2636, ?The Foreclosure Prevention Act,? which would allow troubled borrowers to save their homes from foreclosure.
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Without responding directly to the question of who should decide if one can afford a particular mortgage, I will pose a similar question. Who should decide if one can afford that which is accumulated on a credit card? a car? a college loan?
While none of these are as large a debt to the consumer, similar decision components apply, i.e., can the payments be made? what rate is charged? what is the maximum rate that can be charged? what is the maximum payment?
The assumption that allowed "no" or "low" (less than 20%) down payment loans to be made at initial "teaser" rates which adjust upward after a certain period, is that the housing prices will always go up. Is that a reasonable assumption?
Certainly, in retrospect it is not. But it is never a reasonable assumption that the price of anything will always go up. High tech investors in the late 1990's can tell you that.
Do you want someone to tell you whether you can afford payments? Who shall that be? What recourse shall you have if you don't agree? The question is 'who makes the decisions that effect your financial life?'
Shall it be regulators?
Or shall it be you?
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