In another example of how increased government intervention is not needed in the mortgage lending market, the News & Observer has a story today about how credit unions are stepping up and helping their members refinance adjustable rate mortgages. Voluntarily.
But note this quote from one of the "victims" of those dastardly mortgage brokers.
"I probably should have asked more questions," Evans said. "I learned: Don’t be in a rush when you are making major decisions."
Nobody forced her to decide to purchase a home. Nobody forced her to sign the loan papers from whoever wrote her mortgage.
I’m not saying that there weren’t some rogue lenders out there taking advantage of people, there were. But the core crux of this whole "crisis" is that many people who had no business owning a home were buying homes. There is nothing wrong with renting.
But the tax code thinks so, and gives advantages to those who purchase a home, whether that is the correct option for them or not. But, we all know tax loopholes are "vital to our economy." Right, Rudy?
As a real estate broker and one who works for lenders performing valuations of foreclosed and about-to-be-foreclosed properties, I think that I have a pretty good view about this topic.
The main problem with these loans with a 2-year teaser rate is that they were not sold as a long term solution to a mortgage problem. The premise behind them was this: The borrower, who apparently had problems paying their bills at some point, or they would have good credit, would take the sub-prime loan as a golden opportunity to pay their bills on time, and improve their credit scores, so that they could refinance to a conforming loan prior to the end of the “teaser” rate. This has worked out GREAT for most folks. They would pay their mortgage on time, and their credit scores would dramatically improve. After a year or 18 months of so, but before the rate was scheduled to re-set to a potentially much higher rate, the borrower could refinance into a conforming loan, at a fixed rate. Problem solved.
What most of the folks who are in mortgage trouble now did was to get into a home, and then re-adopt the previous rather cavalier attitudes towards meeting their obligations. This is what constrained their financing choices to sub-prime financing to begin with. When the re-set period comes, they are caught with their pants down. Their choices are now limited to re-financing into another sub-prime loan, which pretty much aren’t available any more, to keep paying on their current loan, or to get foreclosed on. (And yes, there are some much better ways of dealing with losing your home than waiting for the sheriff to show up at the door and evict you. Contact me if you want to know the details.)
So, for the most part, the folks who are in trouble brought it on themselves. I know that there are some sob stories out there. These situations can be handled by voluntary action by the lenders, and NOT by the government, well intentioned though I am sure they are, strong-arming lenders to give relief to the deserving and the deadbeats alike.
I may remind everyone that the lenders do NOT want to foreclose on property. It costs them a fortune in attorney fees, Realtor fees, trash-out fees, cleaning fees, repair fees, and other miscellaneous expenses. Due to the reluctance of lenders to pursue this path, foreclosure generally happens only to people who ignore the lenders, hoping to pull a miracle out of thin air at the last minute. This rarely happens! Dealing with this difficult situation honorably and forthrightly brings much better results for all concerned.