We all know about the problems in the mortgage industry and with sub-prime loans. When they try to blame independent mortgage brokers, it makes me a little angry. I think it's a way for the banking industry to try to put out of business independent brokers. The broker didn't write the lender's rules, that's for sure. So... who's to blame?
A single parent with four children who works in medicine refinanced their home. The loan was a mortgage with an adjustable rate, and her payments were around $1,700 per month at first. Later, as the contract said, the rate went up, and her monthly payments went up by about $300. At this point, the only real problem was that money was getting tighter. A few months later, though, she was fired from her job. Now, she is about to lose her house. She says she didn't know she had an adjustable rate mortgage and didn't know how they worked.
If this woman was approved for a $1,700 mortgage payment, she must work in the medical field and not mop floors. She was in an ARM, and she knew it. On all adjustable-rate mortgages, the borrower must sign a list of required disclosures and receive an ARM Handbook from HUD. There is no question in my mind that she did know how mortgages with changing rates CHANGE. Her job loss was the only thing she hadn't planned for.
Country Wide Financial Corp. released some interesting information about their foreclosures. During the first 10 months of 2007, 60% of foreclosures were caused by a loss or drop in income, while 20% were caused by divorce or illness. I find it really interesting that less than 2 percent were caused by the borrower's new or adjusted rate.
Let's give this some thought. The government wants to stop mortgage rates from changing between January 2005 and July 2007. With this plan, less than 2% of the problem will be fixed. Drop in or loss of income, divorce, and illness are the real problems. American jobs (where have they gone?) and health care make up 80% of the problem.
This problem was made by the lenders, not the brokers, and it should be their fault. And why does the government always want to take over and use our tax money to help people and organisations?
I don't think the banks should be helped out of this, and I also don't think the buyers who made bad decisions should be helped out. I can see that the mortgage broker had nothing to do with this. When independent mortgage brokers are put out of business, it will be sad for consumers. Rates and loan fees will no longer be in competition with each other. The Fed and large, for-profit banks will have full control over interest rates.
What happened to the American Dream? Without an independent mortgage broker, the average American family wouldn't be able to buy the home they've always wanted. If they have even a small problem with their credit, the bank will either turn them down or charge them very high interest rates. The problems with the subprime market today will be nothing compared to what these organisations will do when they no longer have to worry about competition.
