How to Understand the Mortgage Mess Puzzle
Whether you reside in Cincinnati, West Chester, Fairfield, Liberty Township, Fairfield Township or Mason, Ohio you have either experienced mortgage problems or read/heard about them in the media. Finger pointing, consumer frustration and drooping real estate markets have focused on the myriad of issues causing the mess.
What caused the Mortgage Mess?
To understand how we got to this point take a few moments and listen to Dan Green. Green is the author of TheMortgageReports.com and he has prepared a great video on “Why It Matters When Mortgage Guidelines Change”. Once you understand how we got to this point, it may be easier to see why so many people were caught in the net.
Unfortunately because the problem is national the government is charging in on a “white horse” to save as many institutions and borrowers as possible. On Friday the Wall Street Journal covered how “FHA May Aid Those ‘Underwater’ on Loans“.
The Fed’s involvement is like a red flag in the bull ring and today’s article in today’s Cincinnati Enquirer details the clash with this year’s political campaigns each coming out with their proposals to fix the mortgage mess.
This problem is affecting homeowners who owe more than their homes are worth, sellers having to sell for less and the average home owner who also pays taxes.
For this blog I remain neutral on all the proposals and programs currently under discussion. However as a taxpayer I have to wonder how far my tax dollars will spread to bail out every company that made high risk investments, reaped high profits and are now want the government to subsidize poor business practices.
What do you think about the mortgage bailout? How would you “fix” the current problems?
Leave a comment below or send an email.
Having a problem with your mortgage- stay tuned for a blog on how to work with your lender.
hello, i was searching misc mls’s online and wondered upon your site.
The whole mortgage thing is a mess, who knows who exactly to blame. It does make me scared to sign any loan papers, but its always a good idea to read and understand everything you sign. They should ban small print =) and 30 page contracts.
have a good one, Will
I am with you on that. Adjustable rates should be on one page- large type with min and max for each year. Buyer could see actual dollars and make an imformed decision.
Kathy, the majority of people with adjustable rate mortgage understand what the payment will be and the adjustments. All adjustable rate mortgage are tied to an index and a margin. Add the two and you have your fully indexed rate. Say you get an adjustable rate fixed for 5 years at 5% with a 2 and 6 cap. That means that after the 5th year the rate can go up no more than 2% per year and it caps 6% higher than the start rate of 5% ( so 11% would be the cap) These increases are clearly reflected on the TIL ( truth in lending)
Is the problem the Realtor wanting to sell the home and helping the buyer get what they want? The Mortgage company following the lenders guidelines and helping the customer get into the home? The builder buying down the rate? ( Some adjustable rates used allowed the buyer to qualify at the lower rate, not the fully indexed rate. ) Wall street coming up with new types of equity’s (CDO’S) It is a very complex issue with no clear path. I agree that the government,in the quest to “fix” the problem will most likely over regulate and create even more problems.
I think the majority of Realtors, Mortgage Brokers, Banks and Builders want to do the right thing for people. Hopefully we can find a balance.
Kim,
Great point/counter point. Here’s the challenge- you and I understand adjustable rates but the normal consumer doesn’t. As far as “Truth in Lending” disclosures (better know as “Truth in Confusion”)it is like reading a auto repair manual writen by the senior automotive design engineer who labored for 5 years on the car. I would like a car repair manual written by the lady next door, in language I understand.
So here it is. Buyer is financing $200,000. on a three year adjustable. They had 5% down. You pick a dollar amount for property taxes, home owner’s insurance, pmi and interest rate.
Give me a simple to read chart:
year 1 minimum payment – maximum payment
year 2
year 3
year 5
and so on.
We can test the old format and your new format with buyers and let them select which one is the easiest to understand.
Finally this is not a blame game of Realtors versus Lenders, it is a way to help the majority of buyers understand the cost and payments for entire loan. No amount of legislation will prevent borrowers who utilize their homes as their personal ATM machine – withdrawing equity all the time- from having financial problems.
Kathy, I was wrong! The till does not show worst case.
The new truth in lending form needs to show worst case scenario’s Great blog. Keep it up!
Kim,
Thanks for your honesty and help.
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