Bryan Sumner
It has been one of the most disturbing times in the history of our Country and many people have lost their homes and others are struggling to keep theirs. Part of this is due to the fact that mortgage lending spent more time in making loans than teaching the applicants the pros and cons of different products, increasing housing expenses and having sufficient assets before buying a home. There was not sufficient education. This is not intended and after the mortgage meltdown. From the days when it is a cut and dried guideline with conservative policies and procedures to the days of desk top underwriter, loan prospector and SubPrime lending.
I do not believe anyone had envisioned what the effects of SubPrime lending could cause until it was too late to change anything. All parties, not just the SubPrime lenders and Investors, but the Banks, Mortgage Companies, Correspondents and even FHA were already absorbed with this misleading err of mortgage lending to some extent. In other words; guidelines changed so that more borrowers could get financing at less restrictive rules.
There are always many contributing determinants such as job loss and added expenses. Some of these extenuating circumstances were due to job losses, less working hours and the like but a lot of people were already in over their heads.
What went wrong? Basically, loans were made to people who could not financially afford the loan when it was made and did not have assets for the first payment in reserves at closing. Secondly, too many arm loans (adjustable rate loans) were made with very low interest rates so that the borrowers could qualify (debt to income ratios of 50% and the normal guidelines is 36%) for the loan. Some of these ARM loans started to adjusted in three (3) years, some in five (5) years then each year after. Thirdly, when these ARMs started to go up to the higher rate, (after the 3 yr. period, etc.) the already stricken borrower who has obtained a loan they barely could afford with help from the less restrictive guidelines to begin with could not make the payments and pay all their other expenses.
Another part of this mortgage dilemma was the 100% financing which got the borrowers into the house with no money down; a first mortgage of 80% and a second mortgage of 20%. Now, when they need to refinance their home; they can’t in some cases as the property value has declined and there is no equity.
When we are looking for a new home, it is kind of like wanting the piece of pie. We want the biggest piece with ice cream on it. There were a lot of borrowers who bought homes that were not in their means Again, the rules and regulations allowed this…so now the applicants are loosing these nice, large wonderful homes. It might have been better for some if they had bought a home within a lower sale price range and they should have been counseled to do so and were not.
Every American deserves a home, but they also have to continue their meeting other financial liabilities in a manner that will give them the necessities for everyday living. Applicants were educated to the effects of negative amortization; interest only loans or the Option ARM loans that were high on the market at that time.
Will we rise above this fall? We usually do and I certainly hope so. The agencies, banks and mortgage companies have changed their directives which are more restrictive and balanced; but this will only help the future, it cannot help those who have already experienced the loss of their home and those who are struggling now to keep theirs. The Obama Administration modifications, forbearance, and refinances are helping some borrowers to manage to stay in their home and get their financial status back to normal. I think everyone has learned something from the financial crisis.
Tags: Mortgage Crisis
Posted in Mortgage · March 4th, 2010 · Comments (0)