General Question

Snoopy's avatar

Please explain to me what I am missing about the mortgage mess.

Asked by Snoopy (5788points) October 4th, 2008

Without a job (for me at the time) my husband got a mortgage for our current home while carrying a mortgage on the previous home he was living in at that time. The mortgage co advised him that they would have allowed him a mortgage that would have had payments that consumed 70% of his take home pay.

70%!!!

What they didn’t know or care about is that I had savings, was getting a job and he was going to sell his first house.

I think that too many people got too much home on too little income. Too many “interest only” loans. Too many ARM’s. ARM’s are a roll of the dice. You are “banking” on the fact that you can refinance at a decent interest rate and that the home value will rise.

I heard on the radio yesterday that 30 year fixed mortgages have “risen” to 6.25%
Boo hoo hoo. When we got our mortgage 10 years ago it was 7.25%. The mortgage on my husband’s first house was 11%!!!

I see stuff about predatory lending. I don’t doubt that it exists. I think however, more commonly, people bit off more than they could chew. Ultimately the home owner is responsible for understanding the contracts they are signing.

What do YOU think?

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22 Answers

fireside's avatar

I have to agree that the responsibility needs to be focused on the homeowners.
For many years we have been hearing about the housing bubble.

I don’t see how anyone could think that right after the tech stock bubble burst, it would be a good idea to jump into the housing market.

I have always grown up hearing that you never want to get a Adjutable rate on anything and to always get a fixed rate, whether it is for a credit card or a mortgage.

People just seemed to forget that the mortgage brokers were just salespeople who wanted to add to their bottom line, regardless of the homeowners fiscal situation.

laureth's avatar

It’s true that people should really study a mortgage before signing up for one – to know exactly how much it will cost them, and what the effects are if it is not paid. That said, mortgage companies are often much more knowledgable about their product than the average consumer is, and are also adept at hiding the less savory aspects.

Mortgage companies did play some pretty dirty tricks to get people to sign on the line. They would lie and say whatever the customer wanted to hear, if it made the sale. If a buyer was afraid that they couldn’t afford the monthly payment, the broker would introduce a payment schedule where the monthly payment wouldn’t even cover the interest, so you paid and paid but the amount you owed still grew and grew. “Oh sure you can afford this” fast talk. If someone treated their mortgage broker like a financial expert (especially since it should be someone you can reasonably trust), I’d not be surprised when some people were hoodwinked by lies and “technicalities” into signing up for more than they could truly afford, while thinking all the while that it was an honestly sweet deal.

Yes, they should have thought about it and done the math, but it’s harder when you’re not given all the facts. And remember – most people have double-digit IQs.

Bri_L's avatar

It isn’t that I think we, people who only mortgage what they can afford, should pay for those who went nuts. There are those out there who treated their mortgage like a credit card. My wife and I were told were told we could afford almost double what we knew we could.

But, There were an abundance of mortgage companies who were not explaining things completely or properly. Or, as laureth said, in ways that the client wanted to hear. They are a business. It is their job to get the thing signed.

I have said on other threads, if I go to a doctor I expect to rely on their professionalism in that they are telling me everything. If they don’t and I suffer they are liable. I will do what I can up to my ability. Same with my car. I have to trust my mechanic and I will do what I can. I don’t see why I shouldn’t expect the same from something so complex as a mortgage company. And those who say “well they should have known”, to them I say beware, because at some point your expertise will let you down.

My opinion is this bail out is to restore confidence. Get things going again. In the end it will help keep people in their homes. A lot of those people have kids who had no say or choice in what happened. Not a bad thing to keep kids in their homes. Families who can stay in their homes can spend money else where. Part of the plan is to get the money back to us so it isn’t permanent. The people are pissed. They will not let the big companies get away with this. Anyone who wants to stay in their seat will have to bow to the people and explain what they are going to do about this.

Those are my thoughts.

galileogirl's avatar

The bigger the step the more attention you have to pay. The last time I went to the Dr she said I should have a flu shot and I trusted her and said OK. However if she said I should have my breast removed so I wouldn’t get cancer in the future, I would do a lot of research and see another professional before I made the decision.

I can make my own decision about buying a new couch but if you are netting $50,000/year and someone is selling you a $300,000 house that will actually cost you close to $1 million by the time it is paid off in 30 years, you better get some legal and/or financial advice before you sign the contract.

Bri_L's avatar

I understand what your saying. But if your getting financial advice from someone who you think is explaining it to you in order to help you understand. Most people think that the mortgage broker is the financial and legal advice.

Then why would you go elsewhere. We are not talking about Legitimate lenders here. We are talking about predatory lenders. Sales hacks who led people to believe something would work for them when it really wouldn’t.

Snoopy's avatar

Bri & Laureth I understand what you are saying and feel that you are making valid points….

However, if someone could not get a mortgage _anywhere_but a handful of “no name” mortgage companies…..then perhaps that should have given them a “clue” that they need to keep renting…this may have kept them out of reach of predatory lenders.

I have read alot of stories about families losing their homes. Time and again the families talk about predatory lenders as the reason for their misfortune. I have yet to read or hear anything where someone stands up and says: “I made a mistake. My dreams were bigger than my bank account.”

We signed a contract w/ a contractor last week. I read every line of that contract and made sure I understood what I was commiting to….

When we signed for our house, my name wasn’t on the mortgage. They erroneously left my name off of the papers for ownership of the house. 20+ pages of stuff. They said “we’ll fix it later”. Nope. We sat there for 40 minutes while they fixed every page. Buyer beware.

Maybe we have just been very lucky. But maybe not. Maybe we are just careful.

augustlan's avatar

@snoopy: You are also “smarter than the average bear”. I completely see where you’re coming from, and I certainly got myself informed when I bought my first home years ago. However, many people would never even have a thought about questioning the “expert”. I think basic financial knowledge should be taught in schools…maybe it’ll help in future generations.

Bri_L's avatar

@ Snoopy – Countrywide is not a shady organization. They wanted us to go $1200 over what we could afford. Equitable Bank. These are longtime notable institutions.

But, to your point Snoopy, you don’t even need to read every line to know I make this much a month. I pay a, b, c, d, e, f, g and h. in expenses. This would be my monthly for housing. BAM. I can’t afford this.

WAIT” if we give you an ARM: you could. BAM

I don’t know what that is? you mean you could change things this often if you wanted?
BAM
no way.

That is pretty simple with no extra special reading or knowledge

@ all – Obviously, both types are out there.

In my mind the real assholes are the companies trying to take advantage. That was the catalyst for all this.

The real REAL victems are the children of the evicted.

Snoopy's avatar

@Bri To be fair…I think it kinda sucks for the moms and dads too :(

laureth's avatar

@snoopy – everyone wants to live the American dream. People want to stop “flushing money down a toilet” (which is basically what renting is) and start putting money into a home instead – to build equity, to put down roots. And working-class folks may rightly believe that they deserve this. They work hard. They should somehow get a house.

Then, a sweet-talking mortgage broker comes in and tells them that yes, they can. They say those other lenders (that won’t sign them up because they don’t make enough) aren’t giving them a “fair deal.” These things are like sweet flattery to a working family that already believes they deserve more out of life. It’s the lenders that wouldn’t extend them credit that they questioned – not the loan shark.

The easiest thing to make someone believe is the thing they already want to believe, and just need a little encouragement to take the bait.

Bri_L's avatar

@snoopy – agreed I was just pointing out that some of the selfish ones had kids who had no say in it.

wundayatta's avatar

Who wouldn’t do a serious analysis of mortgage expenses? I spent days poring over spreadsheets, calculating what-ifs for our adjustable rate mortgage. We refinanced in about five years after taking it.

If you’ve got the skills, you do the analysis. Even if you don’t have the skills, you do it the best you can. People who don’t even try are just throwing themselves to the sharks.

galileogirl's avatar

daloon: The opportunity to refinance was always one of the options for these bad mortgages. The idea that you could refinance ARMs and interest only mortgages and come out ahead was based on recent history. These people who were buying their first homes had never heard of the value of homes not increasing. In most parts of the country homes have been appreciating for 2 generations. While some of the foreclosures have come about because of income loss, a significant number happened because of the changes in mortgage payments that were never supposed to happen.

And there were a number of brokers who completely lied or took advantage. I’m thinking of the elderly woman who shot herself because her home was being foreclosed. Countrywide should never have given a 25 year mortgage to an 86yo who owned her home outright. The honest and ethical thing to do would have been to send her to a reputable reverse mortgage company. But no, some creep wanted his commission more than he wanted to be a decent human being.

Bri_L's avatar

I was very pissed when I found out our mortgage was sold to Countrywide. That was even before this hit the fan.

wundayatta's avatar

Fraud and unethical behavior has been running rampant amongst the money people. I don’t care if it’s finance, mortgages, or some business like Enron.

Still, caveat emptor. While I want to protect consumers, I think the only real protection is if you try to protect yourself as best you can. You can’t afford to be uneducated about matters that affect your whole life.

The idea about commissions and making money being more important than people is far too prevalent in our culture. I am happy that I was never comfortable trying to make money using borrowed money. Everything I have, I own. Well, almost. As of next May that will be 100% true.

We can change federal regulations, and increase the mandatory reserves, and reduce the allowable amount of leveraging, and we should do these things. But in the end, I think we need a cultural change. We need to make an effort to spread notions of ethical behavior throughout the world, but particularly where we live.

Bri_L's avatar

@ daloon – I agree with you almost 100%.

This rant is more in general because I had it out with a mortgage broker at dinner last night.

I still feel that we cant expect everyone to know everything and be an expert in everything about everything. Especially when the experts are intentionally trying to fool people.

Don’t get me wrong, I agree we have to educate our selves. It ticks me off when I hear people whine about credit card debt or how much they make and they have cell phones, net flix, cable, go to the bars, go to the movies, go out to eat, shopping every other weekend, expensive apartment for the view, eat out at work, go to the game. These are not necessities. But oh darn I have to much credit card debt.

My mom filed for bankruptcy. and after word continued shopping online. My sister had to turn away orders at the door. She still takes 6+ weeks of vacations a year 2 of them to Disney World.

I think it sucks however that we live in a society where the biggest purchase in your life is under the control of people who can work the system like this and people are saying things like “well, buyer beware”. Balony! If I programed a function into a website that made an ad for my own personal website pop up on a random interval and buried the function in jargon in the agreement and then said “well, buyer beware” no one would be pointing the finger at the client. They wouldn’t say “why didn’t

What is it then? Because it’s a house and its the biggest thing we will ever buy in our life? Because the company is so large? Because the info is so complicated? What is it that makes it so much our responsibility?

There are a lot of greedy butts out there whose eyes were bigger than their wallets. But we can’t all be experts on everything.

Or at least we shouldn’t have to be.

wundayatta's avatar

Yah, we shouldn’t have to be. But look where that got us. We have no choice. If we aren’t smart about the economy, we’re gonna get steamrolled the instant we turn our backs.

If you can’t be an expert, then you have to be ahle to hire trustworthy experts. It’s common knowledge that a buyer’s broker is better than using the seller’s broker. People should also know that unless they have their own broker, the broker represents the seller.

For investments: low load mutual funds. Use index funds. Buy and hold (even in times like this). Don’t try to time the market.

Insurance: take Jane Brody’s advice, and take advantage of every type of insurance your employer provides.

Health: lose weight, exercise, eat low fat.

I mean, this stuff is so common, and it just surprises me that people don’t know it, or don’t follow it.

Bri_L's avatar

@Daloon – Good point.

You know it struck me. I was never taught about credit, checks, interest, mortgages, stocks, business in general. That should be taught in high school.

augustlan's avatar

@Bri: I agree, and even said so (somewhere), too! Real world finances should be taught to every highschool student, at least once. Beyond the basics of balancing a checkbook, or making a budget. Real economics.

laureth's avatar

@Bri_L – I think it should be taught in school, too, since obviously today’s parents aren’t doing their part. However, in the school nowadays, they have to spend a long time just teaching to the standardized tests, or they lose governmental funding (“no child left behind”). If they can’t even get to things like literature or even spelling, they’re not going to be able to add things like “balancing a checkbook.”

Parents need to step up – but in too many cases, they need to learn it themselves, too.

Bri_L's avatar

@laureth – all to right. Vicious circle.

Very cool name.

galileogirl's avatar

Well I do teach it in school and have been for years. Seniors don’t have to take the NCLB tests and Srs all take an econ class. Any school that is still teaching Reagonomic crapanomics is not doing it’s job. High school students should be well founded in personal economics as well as the stock market, deficit spending, and most especially TINSTAAFL.

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