Adjustable Rate Mortgage Snafu

Unfortunately we are all aware of the mortgage industry scandal and the sub-prime loan issues. I get a little upset when they try to hang the blame on independent mortgage brokers. Personally, I think it is the banking industry’s attempt to put the independent broker out of business. The broker surely didn’t write the lender’s guidelines. So, … who’s fault is it?

A single parent of 4 kids, working in the medical profession, refinanced their loving home. The financing was an adjustable rate mortgage and her payments, to start, were around $1700 per month. Later, as stated in the contract, the rate adjusted up and her new payments were about $300 more per month. There was no real problem at this point other than just a tightening of the budget. Unfortunately, a few months later she was laid off from work. Now she is about to lose her home. She claims she did not know she was in an adjustable rate mortgage and she claims she did not know how adjustable rate mortgages actually worked.

This woman is in the medical field and obviously doesn’t mop floors if she qualified for a $1700 mortgage payment. She knew she was in an ARM. There are mandatory disclosures that must be signed on all adjustable rate mortgages plus an ARM Handbook from HUD that must be given to the borrower. There is no doubt in my mind that she did understand how adjustable rate mortgages ADJUST! The only thing she didn’t count on was losing her job.

Country Wide Financial Corp. came out with some interesting data about their foreclosures. During the first 10 months of 2007 60% were of the foreclosures were caused by a loss or drop in income, 20% was due to divorce or illness. What I find really interesting is that under 2% were actually caused by the borrower’s new/adjusted rate.

Let us think about this. The Government has a plan to freeze adjustable rates on mortgages taken out between January 05 and July 07. This plan will be addressing less than 2% of the problem. The real issues are drop in or loss of income, divorce, and illness. Eighty percent of the problem is American Jobs (where have they gone?) and health care.

The lenders, not the brokers, created this problem and they should be held accountable. And, … why does the government always want to take control of things and spend our tax dollar to bail people and organizations out?

I do not believe the banks should be bailed out of this and I don’t think we should bail out the buyers who made bad choices. It is obvious to me that this was not caused by the mortgage broker. Sad will be the day for the consumer when the independent mortgage brokers are put out of business. There will be no more competition of rates and loan fees. Interest will be totally controlled by the Feds and large, for profit, banking institutions.

So much for the American Dream! Without the independent mortgage broker the average American won’t be able to afford the home their family dreams of. Any small credit glitches and a bank will either turn them down or charge them very high interest rates. The sub-prime market issues of today will pale in comparison to what these organizations will do when there is no more competition.