| Mortgage Crises. What Really Happened |
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With so many financial bailouts on the horizon, many homowners are just plain angry. We all work hard to get what we have and our elected officials has began to simply give away our wealth. With the recent decreases in the stock maket, we were left to stand hopelessly by as trillions in retirement funds seemingly vanished overnight.
What they are not telling us is that the he Federal Housing Authorty(FHA)has secretly become the homeowners best option. Many homowners are increasingly aware that an FHA loan is much easier and cheaper than any large bank. They are turning to the FHA for their home mortgages. Although they do not adertise this information, interest rates on an FHA loan are at an all time low. In most cases, the interest rates are .25 to .375 percent less.
As a Mortgage Broker for 13 years, it has become apparent that homeowners have began to fight back without realizing it. As the surge in FHA mortgage applications grow, our local banks and large financial institutions beginto lose market share. As that happens, banks begin to lose profit from our monthly interest.
As an insider in the mortgage industry for more than a decade, I can honestly say that my colleauges and I began to question the legality of the mortgage instruments that drove us to the brink of this disaster. The main culprit of this disater is the now infamous Pay-Option Arm Mortgage.
This is a Mortgage extended to clients with large mortgage balances. Each month, they would have an option to make one of four payments on an adjustable rate mortgage. Hence the name, Pay-Option. They could choose to pay a 1% or only interest on the outstanding balance. Or, they could chose to make a payment based on a 15 or a 30-year term at the normal rate.
As hardworking Americans, we all would like to have the option to take a day off occasionally or go on a weekend getaway with our family on occasion. it would be a great loan for an elderly or retired couple. With the increase in medical costs and medication, coupled with the cuts in assistance, it seemed too good to be true. It was just that.
What the Big Banks and Wallstreet did not do is clealy spell out the fine print. It simply states that when you pay 1% of your mortgage balance, the balance on your home increases each month. That is called negative equity. If you are only going to pay the interest for a month, the balance remains the same. If you chose to pay the normal 15 year payment, it was far to much to pay on such a large balance. Or, if you just decided to make the convential 30- year mortgage payment each month, why would you ever take a pay option arm in the first place.
Couple that with a Broker set to earn a 3% premium that was not disclosed to the borrower which came from the lender and 2 points on the Good Faith estimate, that Mortgage Broker would earn 20,000 on that one transction.
It is no suprise to me that there is a grassroots effort underway to provide homeowners with an affordable, low cost refinance or purchase loan with the Federal Housing Authority.
“People are tired of banks taking advantage of them with fees, fines and hidden charges and interest” says a spokesman of the National Mortgage Association. The reason homeowners take a slightly higher rate is because they can skip one or sometimes 2 payments. For a family of four that is a pretty substantial amount.
“People are, cutting back on services they once thought they could not live without. There has been a sharp decline in alarm monitoring, driving without auto insurance and taking off a day of work and using sick days to save no childcare cost.
My next article will delve deep into what people are doing to save money. As for now, the target is aimed squarely at the banks. If this trend continues, they will most certainly raise rates in order to recoup mounting losses from mortgages being converted to Government FHA loans.
moungst after they refuse to loan money and cut credit card limits. |
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