State of the Mortgage Industry
Everytime you turn on the news you get some sad story about the state of the Mortgage industry. I want to write about some of the issues, the causes of those issues, and some companies that aren’t having those issues.
So what exactly are the issues? Well we have multiple issues at hand right now. The first is Sub Prime lending. Many companies did what are called sub prime loans. These are usually loans to individuals with no documentation or stated income. They are given to people with lower credit scores, and they usually carry a higher interest rate. An example was a man I sold a 550k home to. He did a no doc, loan and had a 610 credit score. They loaned him 100% of the homes purchase price. I personally have no sympathy for any loan company willling to loan 100% of a homes purchase price, with no income verification, poor credit, and they didn’t even bother to check and see if he had a job. Guess what that home is now in forclosure? Are we really suprised? Im not!
Another issue are what is called option arms. An option arm gives you the flexability to pay any of 4 different payments. The first is what is called a Neg-Amortization. This means you pay less then the Interest Only Payment. The second is Interest Only. The 3rd is a 30 year fixed payment and the last is the 15 year fixed payment. This one is less the mortgage company and more the buyers. What tends to happen is they start to neg-am there loan and they end up oweing more money then the house is worth. At this point they cannot sell and many people feel that letting the bank own it is the best way out.
When you mix those 2 large problems with many many smaller problems you can see what type of trouble we are in. We have irresponcible lendors lending to irresponcible buyers. Hardly the ideal situation!
There is hope! Many of these companies are now bankrupt or have scalled back these wild programs. We also still have FHA, VA, and other traditional loans as well. I currently am working with a loan officer that has a variety of loans to offer. His company was never involved in these high risk loans and they seem to be taking this in stride. In fact, I think business has decreased as the irresponcible lendors are phased out.
Here is my advice to buyers. Go to your lendor and get pre qualified. Make sure you have some money to put down and realize if you have less then 20% down you will have to pay private mortgage insurance. Know the terms of your agreement. If you are on a teaser rate you need to nest egg enough money to cover the increased payment. You are an adult, know what you are signing.
Well that is about it. This rant is over! Sorry but my sympothy meter is at an all time low!
