I’m visiting family in the Houston area, where I have picked up a copy of "The Real Estate Book." It’s one of those guides you see in grocery stores and restaurants, filled with listings and the occasional mortgage ad.
I wish I had a link for this ad, but it’s in the Brazoria/Matagorda County Vol. 18, #3, pg 35. [I’d scan it if I were home.] It says:
When our customers ask us to approve a loan… we say "Yes!"
Down Payment Source? Who Cares?
Late or Slow Credit? No Problem!
Repossession? Same as a trade-in!
Judgments? What’s that?
Open Charge Offs & Collections? Leave ’em open!
Tax Liens? Even more of a reason to buy a house!
Defaulted Student Loans? A Free Government Loan!
Debt ratios? The higher the better!
Foreclosures? Okay, if it’s not ours!
We are Self Employed Specialist!
Free Credit Repair Assistance!
The ad is for Roosevelt Mortgage Inc, who says they are the number one nonconforming mortgage brokerage in Texas.
I think that if you are the kind of borrower they are talking about, the odds are quite good that you are trying to get into a mortgage you can’t afford- and you know it. Why worry about it though? Lots of people have done the same thing, and now they are enjoying the "dream of home ownership."
Well now the dream has gone sour for a lot of people. It’s tougher and tougher for homeowners to sell or refi our way out of trouble. The Palm Beach Post sympathetically says:
Foreclosures in Florida are at their highest rates in years. Many homeowners and investors are victims of "exotic" mortgages, which allowed them to purchase properties with little money down and with what seemed like small, manageable payments.
Spoiled by historically low interest rates, many of us entered into adjustable-rate mortgages several years ago that are now "adjusting" into extremely high payments.
Here is part of the solution suggested by the Palm Beach Post:
Declare a one-year moratorium on foreclosures in order to allow people more time to refinance or work out other arrangements. In this, the governor and legislators again would have to stand up to a powerful lobby.
With the foreclosure moratorium, the state would mandate that lenders offer distressed homeowners temporary – two- to five-year – straight-interest balloon mortgages amortized over 40, 75, or 100 years. These mortgages would allow people to pay close to what they are now paying on their mortgages and for real-estate values to stabilize. It would be a healthy alternative to foreclosure for both lenders and borrowers.
The Palm Beach Post is failing to recognize a couple of basic things here. First, if you have no equity- YOU DON’T OWN THE HOUSE, AS THE BANK OWNS 100% OF IT. You have TITLE, and in this instance, an obligation to fulfill a debt you can’t pay. If the bank wants to change the terms of its "rental agreement" with you, it has the right. But it also has a responsibility to shareholders and investors. Banks do not have bottomless reserves to carry everyone- many lenders are already in crisis. This does not sound like a practical solution.
If the only option people had was homeownership or the streets, then perhaps the Post might have a point. However, we need to get over considering renters second class citizens. Renting is an honorable alternative, and in many instances a more affordable option for people. We need to recognize that not everyone is in a position where the commitment or the expense of owning a home makes sense for them- and that’s o.k.
In May of last year President Bush issued a proclamation stating:
Owning a home is an important part of the American dream. During National Homeownership Month, we raise awareness of homeownership and encourage more Americans to consider the benefits of owning their own home.
Nearly 70 percent of Americans enjoy the satisfaction of owning their own home, and my Administration continues to promote an ownership society where the promise of America reaches all our citizens. The American Dream Downpayment Act of 2003 is helping thousands of low to moderate income and minority families with downpayment and closing costs, which represent the greatest barrier to homeownership. Since 2002, when I announced our goal to help 5.5 million minorities become homeowners by the end of this decade, the rate of minority homeownership has climbed above 50 percent, and more than 2.5 million minority families have become new homeowners. My Administration will continue to provide counseling and assistance for new homebuyers and expand homeownership opportunities for all Americans.
It’s about time we consider a new dream. A dream where Americans have a minimum of debt, and have sufficient savings and investments to protect themselves financially,. If you can achieve that and own a home, that’s great. However, too many American’s have risked everything for "the dream of homeownership," and lost.
We need to look at possible predatory lending practices and prosecute offenders, we need to make sure that loan documents are clear and are easy to understand, and we need to make sure that honest borrowers are protected. Even the most honest of us make mistakes though, and it’s difficult to see how taking 100 years to pay off a home we can’t afford will fix that.
These mortgage loan "victims" need to get their financial act together. If banks feel it is in their best interest to work with borrowers, that is their option. It’s sad for people to lose the house where they spent all that time landscaping the yard, or where little Timmy took his first steps. But let’s not put further stress on our banking system, though, or the well being of others, to protect the "home ownership" of these borrowers. They owe more than the home is worth, remember? They’re renting anyway. [all emphasis mine]