I know I'll probably get flamed for this, but the government has no (or at least very little) business meddling in this. I had 4 mortgages with 5/1 or 5/6 ARM's during the past 6 years and I knew very well that the rates could and probably would go up later on. I knew I'd be using them short term, so no issue. But it's very clear that the ARM's are adjustable and can go up, and likely will go up. Anyone who says they had no idea either didn't read anything they were given to sign or lived in a cave paying no attention to the news during those boom days, or they just heard what they wanted to....
More than likely, many if not most of the people in these positions were looking at the 'get something for nothing' side of it thinking 'it won't go up' - well, just like stock speculators they got burned. I'd love to know how many of these people probably bought larger homes than they could have afforded even with the intro rates to begin with & couldn't afford 1/4 pt. increase, let along larger ones. I even have a few friends who may be in this boat, and when they asked for input when they bought originally I told them be careful of the ARM's, they will go up. They said, "I'll worry about that later, I don't want to pay the higher fixed rate right now". Well, it's later - so here you go. The buyers need to take some of the responsibility here. I certainly hope absolutely no tax money is going to subsidize these types of deals. It's bad enough I had to pay government people to work out these deals with the mortgage industry.
I gotta wonder how much would have been done here if it wasn't an election year coming up. To me this is all politics - on both sides.
Now I'll grant that there are some people who got suckered, possibly even frauded into some loans and something probably should be done if fraud by the lenders can be shown. But I believe that's a small part of the overall group.
shakey ground Scott... This would not have happened if the current occupants of the WH had been more concerned with the business of the people and not the business of donors and industry. There has been no credible oversight of this industry or it's ties to the sub-prime market in the last 6 years. Relaxed credit rules and too easy credit and the current mind set of buy now, pay later have led to this.
The issues that impact certain mortgage companies are mostly related to the relaxed credit rules of subprime lenders over the last six years. Those in the real estate industry have carelessly tossed around terms like subprime barrowers, however many consumers aren’t sure what a subprime borrower is or what the term subprime actually means. A subprime barrower is someone who “typically” has a mediocre to poor credit score and is often challenged with having little or no money for a down payment. Hence they must accept a higher interest rate due to the potential risk of walking away from the loan.
Recognizing a need for a mortgage product to help these buyers afford a home, the mortgage industry several years ago began to relax their lending rules to accommodate these new found home buyers. In exchange for the risk the lenders faced with loaning money to buyers with less than stellar buying power, lenders charged higher interest rates for these loans. Many subprime borrowers selected the adjustable rate mortgage (ARM) product as a means to finance their new home as it offered the lowest possible monthly payment at the outset of the life of the loan. When combined with home values in some areas declining, and virtually no equity built in the home, many homeowners who desire to sell their homes are now upside down in the value of their home versus what is owed on the loan.
Plus, many borrowers who selected an ARM saw their monthly payments rise dramatically to levels they could no longer afford. The interest rates on these subprime loans are now adjusting to higher rates, making them unaffordable to many investors and homeowners, thus causing delinquent mortgage payments and home foreclosures. As a result, national home foreclosure rates are at an all-time high.
This reminds me of the melt down of the S&L under Bush 41. His son Neil was involved in one such fiasco and it cost the taxpayers $5B to recuse his S&L. Now credit card companies are finally getting the look they deserve for their predatory practices and interest payment sleight of hands.
Trust me, I understand the purpose & subprimes and all that went on relaxing the requirements very well as I do extensive personal business in mortgages (far more than I'd like really).
And while there are definitely issues needing addressed in the mortgage industry and better oversight, the buyer still has a responsibility to do their due diligence & know what they're signing. That's no different from buying a watch from ebay, a car from a dealership or a mortgage. Sales people are paid to sell - period. Sure, we hope they do what's best for the consumer, but we know that's not always the case. So the consumer has the responsibility to either 1) research & understand what they are buying or 2) accept the consequences of not. That philosophy has been around for a very long time. If you ignore #1, then you should face #2. The lenders definitely relaxed the rules too far & share blame, but you can't put all the blame on them. A consumer is responsible for making sure they can afford what they buy, and understand what they are buying - especially something as important as a house. People thought the lower monthly intro rates were a magic bullet and again, 'they were getting something for nothing'.
Again, I'm talking industry wide. while some lenders definitely did go too far & cross legal lines with fraud (several are being charged here in Ga.) not all subprime is predatory lenders. Anything less than a 680 FICO can be considered subprime by some national lenders. And a sizable percentage of the nation falls in the <680 range.
The credit card mess is a whole 'nother ball of string, and I do agree things need changed there. But I also think that's a different issue. In that case, the terms can change at any time, with barely any notice. At least your mortgage can't change outside the original terms. Sure, the rate can change, but you knew that if you bought an ARM. Credit cards aren't the same issue.
Again, all JMHO.
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