From Reuters.com: President Bush to outline 5-year rate freeze. Essentially, the sources quoted in the Reuters story claim "the plan envisions covering subprime loans taken out between January 1, 2005, through the end of this past July, with rates that are due to reset over the coming 2-1/2 years." Later on, more specifics are offered:
Under the plan pitched by the ASF, distressed homeowners would be offered mortgage help according to their ability to pay.
Borrowers with strong credit would be encouraged to drop their existing loan and be shepherded to more affordable mortgages like those offered under the Federal Housing Administration. In August, Bush expanded that government program so that it could reach an additional 240,000 troubled borrowers next year.
A second class of borrowers who simply do not have the resources to make mortgage payments would return to the rental market.
A third group of borrowers who have shown that they are a reasonable credit risk but who could not afford their homes with higher rates would qualify for "fast-tracked" loan modification and a five-year interest rate freeze.
Other existing borrowers who have struggled to keep up their loan payments could still qualify for the freeze, but would face more scrutiny before receiving any loan modification.
I've said this before: why should the government be involved, at all, with protecting (or otherwise aiding) lenders or borrowers that, through their own willful actions, are in danger of defaulting? No one held a gun to a borrower's head, and forced them to sign an adjustable rate mortgage; no one held a gun to a lender's head, and forced them to lend money to a high-risk applicant.
The one line that absolutely kills me: "A second class of borrowers who simply do not have the resources to make mortgage payments would return to the rental market." Does that mean the plan will force both the lenders and the borrowers to convert the mortgaged property to a rental unit? Or force people to move out of the mortgaged property to a rental property? Or wave a magic wand and *poof* the mortgage is gone, no penalties, no worries, here's a listing of local rental units?
Seriously, if that group of borrowers can't afford the mortgages, why are they not renting already?
To me, this is a gigantic slap in the face of every responsible homeowner; the ones who had the ability and the foresight to plan ahead, to only take out as much money as they needed, to work hard to make their monthly payments. Now, Bush's plan is to reward irresponsible behavior: take out too much? didn't plan properly on ballooning payments? decided to buy that $2000 hi-def TV instead of putting that money towards your mortgage? Don't worry, we'll take care of you...
The other thing that galls me is this: what happens after the 5 years is up? Do the rates suddenly go up again? Do we go through another round of this? Or is it simply a matter of "That's the next guy's/gal's problem"?
One of the sidebars in the Reuter's article links to a "FactBox", a quick-hit of the major candidates stands on this "mortgage crisis". The talking points speak for themselves...
HG
At least this problem, more tractable than public education, may be solvable by the great minds on this blog.
Ideas that do not cost taxpayers money have merit. I list the suggestions from the "Factbox". I've crossed out the ones I do not like and commented in italics on others. Some may not be legally feasible.
Clinton
- called on the Bush administration to impose a 90-day moratorium on foreclosures of subprime mortgages on owner-occupied homes
- said she might offer legislation that would allow lenders to restructure troubled loans without investor permission
- proposed $5 billion for counseling and other measures to reduce foreclosures- on her Web site, Clinton says she would limit prepayment penalties for those who refinance.
FORMER NORTH CAROLINA DEMOCRATIC SEN. JOHN EDWARDS:
- said on December 5 that any interest-rate freeze should last seven years (Large institutional holders of mortgage notes need to evaluate what revisions of mortgages they can allow to minimize their losses)
- said lenders should help those facing foreclosures by converting their loans to a fixed rate, reducing their interest rates, forgiving a portion of their loans, or capitalizing their delinquent payments (This seems to suggest comment for previous item.)
- said he would establish a fund to help borrowers restructure their mortgages- said he would allow bankruptcy judges to rewrite mortgages- On his campaign Web site, Edwards says he would prohibit balloon loans, steep prepayment penalties, mandatory arbitration clauses, and other "excessive" fees. (Good idea for future)
- would regulate all lenders and strengthen underwriting standards (Good idea for future)
- would ban "yield-spread premiums," the incentives paid by lenders to brokers who steer customers to more expensive loans (Good idea for future)
ILLINOIS DEMOCRATIC SEN. BARACK OBAMA:
- On his campaign Web site, Obama says he would establish stiff penalties for mortgage fraud (I'm sure appropriate penalties already exist with current law. I know of one local home owner who received a bogusly high appraisal.)
- would establish a fund to help people refinance their mortgages or sell their houses if they can't afford them- would use a small portion of profits from Fannie Mae and Freddie Mac to create up to 14,000 units of new affordable housing every year- would restore funding for the Community Development Block Grant program, which provides housing and jobs for low income people.ARKANSAS REPUBLICAN GOV. MIKE HUCKABEE
- "The worst thing we can do is simply to have the government come in and bail out either the lender or the borrower who unfortunately made some very bad business decisions," Huckabee says in a YouTube video, adding that it wouldn't be fair to those who bought homes they can afford. "Frankly the market will correct itself. It will be painful for some people," he says.
Michael Fuerst
A property tax freeze might be a good idea. You have people in the middle of sub-prime squeeze and their property tax assessments are going through the roof. On top of that, the property tax rates are STILL increasing.
The banks who made the risky loans knew the risks, and shouldn't be bailed out.
The borrowers who wanted more than they could afford knew the risks, and (absent any fraud) shouldn't be bailed out.
A five-year freeze is an awful, terrible idea.
The people that took these loans must have been asleep when the lender was explaining the terms of the loan, the last home I bought, my Attorney and the Banker both went through the terms of the agreement before and papers were signed. I agree that these lenders knew of the risk. Let the Mortage lenders re-negoate the rates, and keep Uncle Sam out of it!
You folks don't seem to realize the political side to this. A purist conservative approach doesn't account for the political reality and self preservation of those in power seems to be the main driver of this plan.
"You folks don't seem to realize the political side to this. A purist conservative approach doesn't account for the political reality and self preservation of those in power seems to be the main driver of this plan."
I do realize the political side of this; I'm just opposed to it. As should be the vast majority of Americans who borrowed and lent responsibly, and who aren't getting any sort of government handout.
When I read point two that got under History Guy's skin, I just figured that "returning to the rental market" was a euphemism for foreclosure. No one wants to see someone get chucked out of their home, but they shouldn't have taken on the risk. It's like a guy loosing his snowcone stand in Alaska - an perfectly avoidable tragedy.
I think that most of the money that will go to make these plans work will come from the banks. When they say say that the government is asking for the interest rates to be fixed for five years or however long it may be, that's the bank doing that, not the government, unless the banks start failing. The unspoken threat is: if you (the banks) don't freeze their rates, we'll investigate your business practices of offering ARMs with low teaser rates to people with bad credit, with possible criminal indictments to follow.
If the banks end up eating most of the costs, and I think that they will, then we have essentially rewarded people for making bad decisions about how much loan they could cover, and punished those who rent, save up money, and then take out a responsible amount of money (oh crap, that's me!). If we are making a political football out of this, someone should point that out, since there are plenty of people that are more responsible than some of the borrowers and lenders in all of this. Better to spread the pain around the people that made bad decisions than to taxpayers and responsible borrowers.
"Better to spread the pain around the people that made bad decisions than to taxpayers and responsible borrowers."
Cosign.
"Better to spread the pain around the people that made bad decisions than to taxpayers and responsible borrowers."
Could not have said it better myself. If Bush et. al. propose even $1.00 of taxpayer bailout, he will sow up the title of "Worst President To Date". Also, any canidate regardless of political party proposing a taxpayer "bailout" of this market problem should never be elected to anything, let alone the Presidency of the USA. The market has to take the lumps, let it happen.
I'm far from very knowledgable on this subject, but from what I've read, it's not that simple. The mortgages aren't just held by the originating bank. They're bought and sold. Often, they were bundled with other, less risky mortages and the bundle sold. Bundled with enough low-risk mortgages that the whole package looked low-risk. Since the original loan agency knew they weren't going to hang on to the loan for long, it was in their best interests to give terms that were sustainable in the short-term but not so much in the long-term. I've also heard stories about borrowers starting to get into trouble and trying to get in touch with whoever owns the load, but having difficulty because it's changed hands so many times.
I'm not really in favor of a major bailout, either. I'm just saying the situation is very complicated. Frankly, I think economics is just short of black magic.
"I'm far from very knowledgable on this subject, but from what I've read, it's not that simple. The mortgages aren't just held by the originating bank. They're bought and sold. Often, they were bundled with other, less risky mortages and the bundle sold. Bundled with enough low-risk mortgages that the whole package looked low-risk."
Then the funds that bought the risky mortgages should have known they were risky. Due diligence and all that. To me, that's no excuse - if they didn't know what they were buying, they shouldn't have purchased them.
"I've also heard stories about borrowers starting to get into trouble and trying to get in touch with whoever owns the load, but having difficulty because it's changed hands so many times."
Now, if this is a problem, I could support allowing for a 90-day grace period after the mortgage is sold before foreclosing, or some other reasonable time-frame. I know my (fixed-rate) mortgage has been sold three times in the past five years, although I've never had any problem getting a hold of the company that owns it.
From the link...
"An estimated 1.8 million U.S. homeowners who took out loans with low teaser rates face pricey loan resets next year alone, the Federal Reserve has said. Officials fear half a million borrowers risk losing their homes."
I don't see a freeze a bailout so much as a way to sticking it to the banks who purchased the loans on the market. The banks who purchased the sub-prime loans were expecting to get paid when the borrowers rate adjusted to the higher rates. The rate freeze component of this proposal is not a bailout. It appears to be just the opposite.
"The rate freeze component of this proposal is not a bailout. It appears to be just the opposite."
Sure it is - it's a bailout for the borrowers, who also knew the risks (again, absent any fraud).
You are right. I was thinking one-dimensionally. I hope that the credit records of these borrowers reflect the rate freeze assistance. That would be appropriate.
Theoretically, I have a problem with the government trying to rewrite contracts between two private parties. There's plenty of problems with this system--banks were loaning money to people who could not afford the houses they bought. Then they were sold, resold, bundled, etc. so that now no one knows who actually owns some of the mortgages. Not too long ago, an Ohio judge threw out some foreclosure cases because the banks couldn't produce proof that they actually owned the mortgages. And apparently some foreign lenders and some government pension funds invested in this stuff as well, so the ripple effect is going to be bad.
I remember reading about the Ohio case Champaign Dweller mentions in the New York Times. There are various other abuses going on where inflated fees get added to the loan if you default, or even if you declare bankruptcy without missing a single payment. In one case the bank was off by a factor of ten on the amount still owed on a loan.
While I don't think a bailout for lenders or borrowers is a good idea, there needs to be some strong oversight of the default process so that the borrower doesn't get screwed all over again. I'm all in favor of tightening regulations so that when a sub-prime mortgage is foreclosed there is a "public defender" helping out the borrower.
THANK YOU George W again for expanding government into the private sector.
Sorry for the late replies, long day at (and after) work...
On December 6th, 2007 at 10:18 AM, IlliniPundit said: "You folks don't seem to realize the political side to this. A purist conservative approach doesn't account for the political reality and self preservation of those in power seems to be the main driver of this plan."
I do realize the political side of this; I'm just opposed to it. As should be the vast majority of Americans who borrowed and lent responsibly, and who aren't getting any sort of government handout.
agreed. I recognize the political side to this, and like IP, am opposed to it. I think the reason I find it so galling is the Federal government would theoretically use their time, money, and effort (which means: my time, money, and effort) to help those who were unable to plan properly and who entered into the loan agreement voluntarily.
On December 6th, 2007 at 10:42 AM, D-Man said: "When I read point two that got under History Guy's skin, I just figured that "returning to the rental market" was a euphemism for foreclosure. No one wants to see someone get chucked out of their home, but they shouldn't have taken on the risk. It's like a guy loosing his snowcone stand in Alaska - an perfectly avoidable tragedy."
I didn't even look at it that way, and now that you mention it, that does seem like a plausible euphimism for foreclosure...
"Better to spread the pain around the people that made bad decisions than to taxpayers and responsible borrowers."
Again, agreed. Don't reward bad behavior; it just encourages more of it in the future...
I really, really hope this doesn't come to pass...
HG
...now that you mention it, that does seem like a plausible euphimism for foreclosure...
Yes, they will return to the rental market after various market movements causes the issuing authority to make domiciliary adjustments to their prior domestic arrangements. That sounds so much better than chucking them out on their butts! (Or maybe chucking them out on their arrears? Ok, I'll stop now.)
On December 7th, 2007 at 04:03 PM, D-Man said: "(Or maybe chucking them out on their arrears? Ok, I'll stop now.)"
:-) that's pretty funny right there...
HG
What was it Gordon Gekko said?
"Greed is good."
And I am looking for comments here, please, because I am going a little different direction.
In the 70's and 80's banks were giving away $10,000 limit credit cards like oats in the Churchill Barns gobbling up all that interest on those big accounts. But then people could not pay back the principal and even though in most cases the Banks were not actually out any money, they were not going to realize the enormous profits.
The loans were essentially unsecured and assets were probably not of much value anyway. Worse, many of the default cards were college grads without much to liquidate in collection anyway. So the grads just declared bankruptcy and re-started their lives.
What had actually happened was the banks made a terrible business decision extending that much unsecured credit and greed of the interest drove them to that decision. BUT the political climate was such then, that they could convince Senators and Representatives to change the bankruptcy laws, essentially creating a debtors prison of credit card holder and bailing out the banks.
They did the same thing with the variable rate mortgages, but this time, the political climate is not the same and even though the loans were secured, they ain't worth a Tinkers Damn (Tinners Dam) unless there is a market for the security. Again the Banks made a bad decision and look to government to bail them out.
But in this case, the bail out has the appearance of a "Good Guy" solution for both the Banks and the Government. The Banks look like "Good Guys" because they are agreeing, and the Government because they helped people in the worst possible position. The unusual "Win - Win" scenario.
Other fact is, the Government could not allow the economy to take this huge foreclosure hit, because some banks would have to fold (they made REALLY bad decisions) and possibly the Federal Reserve Insurance could also take a hit. People would not want to buy the security and the houses would just be an additional expense burden on the banks.
I am in agreement with Gordy and History and Gregg and others, both parties knew what they were getting into, but honestly, the banks were driven by greed and the buyers were driven by the life long dream of owning their own home.
Ask any horse, that carrot which is being offered is just sometimes too sweet to resist. Besides it is being held so close, that the vision of what is behind it is often blurred.
To that end, I am, and shall always remain;
Rex Bradfield
All I can add is " Folks look after your own interests and don't ASSUME any public agency is going to come to your aid." Which is not to say you shouldn't IF the market goes crazy, and you find yourself in an unforseeable need. BUT interest rates rising 2-3% over 5-10 years, when thay have recently dropped 2-3% in 2-5 years, is NOT unforseeable....in my mind... no matter what party is in control...
I guess I got in at the right time (over 10 years ago) , cuz I probably couldn't afford to buy my house now. So luckily for me my timing was good. But I went by that , I dunno "adage" that you NEED to put 10-15 even 20% down to assure yourself that if the mortgage is less than your current rent, it will likely remain so, or at least increase at a lesser rate than rent would. BIG IF, but probably so, unless you get in when interest is ridiculously low, as it is/was for a time. BUT NOBODY expected it to stay that way!!
NEVER buy your PRIMARY dwelling on a NO interest, double mortgage, interest only, or some other similar incentive UNLESS YOU ARE ALREADY FINANCIALLY SECURE!!! THAT is something I WISH lending institutions would advise their clients, but that ain't never gonna happen.
Lenders SHOULD have to give clients notice of how much payments will rise if interest rates increase by 1,2 and 3%...and advise them of ways they can increase equity, by overpaying by $50 a month...or any amount, but explain to them that ALL overpayments will reduce their "backend" (the LENGTH of the mortgage) BUT will NEVER reduce their "front end" (the amount you owe each month). Mine did..
I think lenders that make "risky" loans OWE that much to their clients..
AND/OR Maybe that's something we should teach in our highschools..? Or just take the time to teach this to your kids!!! Whether you are "dirt poor" or "stinkin' rich" or somewhere in between, doesn't mean your kids deserve,are entitled to, or will be, the same... Your PAST(better or worse) is YOURS, NOT THEIRS! And their FUTURE is THEIRS!
AND DON'T SQUANDER WINDFALLS, small inheritances, and uh Big Days at the Track(or hey...don't blow $100 at the track if you want to buy a house).. or a $500 lottery scratcher ADD UP! Buy a CD (cert.of deposit, not music), but don't buy crap that won't get you anything but instant gratification(BIG SCREEN TV), or cause you to pay even MORE in maintenance ( Like the cell phone you could never afford before) !
THIS is what people DO, when they want to make baby steps towards longer term security. I'm not saying that if you live paycheck to paycheck that your some kind of degenerate, but if you can save 20$ a week for 5 years, you'll have $5000 or $50 a week, $12,500.. and that may not be much in this market, but add to it windfalls, and bonuses... etc.
AND for what it's worth, I got my lender to Guarantee that they would not sell my loan, in writing!... Maybe that doesn't mean much, but to me it means: I made a deal with YOU (lender), and I have my relationship with YOU. YOU are my bank, that I have been been patronizing for years, and should I fall on hard times, I want to come to YOU for help, advice,assistance, NOT some faceless mortgage company, with whom I have NO relationship, and who doesn't give a rat's ass if I fall into foreclosure.
The Gov't doesn't OWE you a home........yet........ And it NEVER should!
AND when you beg, borrow, scrape, give up small pleasures, AND pay ever increasing property taxes on property YOU paid for "in full", you'll understand why the "ants" resent having to stomach the idea of gov't coming along and bailing out the "grasshoppers".
Oh and to respond to Rex's quote or Gordie Gecko's quote: Greed is good. Well I understand what you mean,,, And I don't disagree, and to a point, I agree... but I will say: Money is a tool.... a means to an end, but not the end goal in and of itself. It's not "Money is the root of all evil" ...... It's, "The LOVE of money is the root of all evil" We all want to "power" to control our own lives, but when we use that power to control others' lives, we've crossed a line. At that point you better be a guardian or steward, and not a usurper or a predator.
Yep,
It was a bad idea for Gordon and is a bad idea now. I said that tongue in cheek.
In another blog response MJ asked me about banks, and I stated I didn't want to go there. My grand daughter is trying to save a little from a High School Job and got dinged for NOT PUTTING IN ENOUGH MONEY!!!!!!!!! When we tried to get it back, we ended up talking to a person in MN, not even Illinois and they gave us the old, I can't do anything, it is policy two step. I wonder if $20 a week is enough to the banks, or will they eat it up with administrative fees?
"The LOVE of money is the root of all evil"............ interesting. Probably true for everything except governments and pension funds misuse.
I recently bought some property, and when I was negotiating the loan, the lender that I was using, did his level best to explain the way the variable interest loans work. Now, I am certainly not quick about a lot of things, but math is not one of them. But by the time he got though, my left eye had nearly crossed to my right, I had a grey streak in my eyebrows, my nose hair was at 3 inches and tequila does not make my head spin that much.
I can't imagine how confusing it is to someone who does not like math.
It used to be with the small town banks, that the banker was your friend, knew you personally, and knew everyone in your family. But with the pressure on banks to make money through loans and investments, that has fallen by the wayside. Can you imagine the heat a small town banker would take, if he charged your kid money on a savings account, because the kid did not put enough in?
And a last question on investments.
When a bank invests in the commodity market and buys a million bushels of corn, where do they store that corn and who keeps it for them? I haven't seen many bankers that know they make left and right hand corn scoops.
To that end, I am, and shall always remain;
Rex Bradfield
Trying to get this thread back on track, here's a short peice by Mark Steyn at National Review Online, about the free market for housing. (fyi: the latter half of his essay focuses on what he terms a "free market for religion", starting about paragraph 5)
Best quote, in my opinion, is this:
Stay safe on the roads today, folks...
EDIT: forgot the article link -- oops!
HG
Well, I've been saying for many years that this isn't a "conservative" administration, and hasn't been since early in the first term.
Of course, for some people, the terms "supports the war" and "conservative" are interchangeable and equivalent, so that's where some of this is coming from. But this is not a conservative administration, and George W. Bush hasn't been a conservative President.
And this rate freeze is a terrible, awful, pandering idea.
UPDATE - let me see if I can move this to the right place in the thread.
Sorry for the formatting error, everyone. I noticed, after IP's post, that I forgot to include the link to the original story, so the postings are out of order...
On December 10th, 2007 at 10:43 AM, IlliniPundit said: "Well, I've been saying for many years that this isn't a "conservative" administration, and hasn't been since early in the first term."
I read it as he was slightly mocking them for being perceived as conservatives, even when they're not. My first thought was how someone will, in personal conversation, use air-quotes to mock whatever it is they're quoting. Just my two cents...
HG
I am a bit confused,
This plan is not law yet, correct?
If it is law, didn't it require some Congressional action? If not, won't it require some?
If Congress does act on it, then doesn't that require Democratic votes, thereby not making it an Administration issue, but rather a general issue?
Or is this simply an Executive Order?
To that end, I am, and shall always remain;
Rex Bradfield
On December 10th, 2007 at 12:15 PM, RexBradfield said: I am a bit confused, This plan is not law yet, correct?
From James Surowiecki, writing at the New Yorker Magazine, goes over the plan. He describes it as the following:
If i remember correctly, most news reports have reported similarly. So, to answer your question(s): no, this isn't law; no, it will most likely never be a law passed by Congress and signed by the President; and this (so far) isn't an Executive Order.
HG
Since it is (or appears to be) largely voluntary, it's less of a terrible idea than I had thought.
Thanks for the information.
Thanks for the info History, looks voluntary to me, too.
Which makes me even more confused.
To that end, I am, and shall always remain;
Rex Bradfield
On December 11th, 2007 at 08:20 AM, IlliniPundit said: "Since it is (or appears to be) largely voluntary, it's less of a terrible idea than I had thought. Thanks for the information."
If it's truly voluntary, then I might be more accepting of the plan. But I still find the idea of the Federal government stepping in and "encouraging" lenders and borrowers distasteful, to say the least...
HG
In actual fact, it is all political spin. Bush made the announcement, supposedly with the backing of the financial institutions in this 'look at us, we're trying to solve the problem' kind of way. But it's all empty. It requires action from the mortgage companies and the truth is the mortgage companies are willing to do NADA.
Slam me if you wish. I stupidly got myself a 2 year ARM. The idea being, I could get in the door of homeownership and refinance before the reset. My mortgage will increase by $1000 per month by the end of this year. House prices have fallen, so I can't re-fi. I called Citi residential only to be told 'It was just an announcement and unless it is made law, there will be no freeze'. When I tried to pin the girl down on exactly what the announcement meant she said 'I don't know, you'd have to talk to your president about that'
In conclusion - the teaser rate freeze does not exist.
There is nothing wrong with getting a 2 year ARM. You took a huge gamble and lost. You had several options. There is nothing good about what happened to you, but there is only person to blame and only one person who should be held accountable. President Bush certainly is not to blame and taxpayers should not be held accountable. I sincerely wish you the best and hope everything works out.
"Slam me if you wish. I stupidly got myself a 2 year ARM. The idea being, I could get in the door of homeownership and refinance before the reset. My mortgage will increase by $1000 per month by the end of this year. House prices have fallen, so I can't re-fi."
I'm not going to slam you, but absent any fraud, you've not been a victim of any crime. Did your mortgage contract promise you that house prices would rise indefinitely?
You took a risk, hoping to make a profit. It's not worked out for you, but nobody owes you a bailout, least of all the taxpayers. Certainly not the mortgage company, whom I presume told you up front about the terms of the mortgage to which you voluntarily agreed.
Maybe I'm just a heartless naive fool who thinks that people should have to live with both the good and the bad consequences of their choices?
I agree. I only have myself to blame and I really don't expect anyone to 'bail me out'. Trust me I'm not feeling like the brightest crayon in the box right now.
While I take responsibility for accepting the terms. They wouldn't have been accepted, if the terms were not offered. Mortgage companies should take some of the responsibility. I also believe that they should take the financial hit - not the taxpayers. They got greedy and pushed these mortgages to people who thought their ship had finally come in. We certainly should have been a little more careful but we were also at the mercy of some pretty savvy snake salesmen who were hell bent on earning some pretty hefty money from these mortgages. At the brokers office - going through all the paperwork for the mortgage, I actually asked what would happen if house prices fell. The broker looked at me, laughed and said 'That won't happen'. I know little about mortgages, so I believed him. I believed that we were doing the right thing
What frustrates me now, is that the announcement was made and I don't understand why, if there really is no intention. They dangled the carrot with sub prime mortgages and some of us stupidly took a bite and now they are dangling the carrot with this supposed solution. In reality the solution is not there. SO I have to wonder why Bush made the announcement in the first place.
I'd be very interested in talking with some of the people who are having ARM problems for a News-Gazette article. Please email me at pwood azt news-gazette.com
"While I take responsibility for accepting the terms. They wouldn't have been accepted, if the terms were not offered. Mortgage companies should take some of the responsibility."
The responsibility for what? For offering something that you accepted?
If your home's price had continued to rise, and you'd refinanced out of the ARM, the mortgage company would have provided you a low-interest loan for two years, and probably would have lost money doing so, in the hope that they would have earned your loyalty and then could have locked you into a product that was more profitable to them. That was one risk they were willing to take, and they did. The risk worked for them, and not for you - but you were both aware of the terms when you agreed to the contract. Again, absent any fraud, I don't understand why they should bear any responsiblity to sweeten the terms for you.
It sounds like, from the questions you asked at your closing, that you knew the consequences if home prices fell, yet you took the risk anyway. I'm sorry that it didn't work out for you, but risks are, by definition, risky.
It was a worthless announcement that only got people's hopes up. Maybe it was a slow political week.
Why would a mortgage company voluntarily give you back money? It is the same reason the county taxing districts are not going to give you back money on your property tax payments if you property value value decreases. It just doesn't work that way.
Many people go into a casino and they are presented an upside benefit with a downside risk. I understand you are frustrated, but we really can't expect the casino to give back your money. Blaming the casino for making you the offer is a stretch.
"The broker looked at me, laughed and said 'That won't happen'. I know little about mortgages, so I believed him. I believed that we were doing the right thing". I have to admit this doesn't sound very professional, but I don't think that's enough to hold them accountable for offering you a loan with certain terms and conditions.
anon, is your home in Champaign county? (I am just wondering if this is a local story, or in one of the "hot" urban housing markets)
I am in Baltimore.
Perhaps I am out of my league here even commenting. I don't understand a lot of the whole banking stuff (umm obviously..lol) but I do appreciate reading your comments. If nothing else, I guess I learned the hard way and I will just have to suck it up until things improve and I can re-fi. I just wish I knew when that was likely to be. I really am not expecting any hand outs, just wondering how I can salvage this situation. I am not currently in a position where I am likely to lose my home, yet. Just worried about that darn reset in July and December. There are people out there in far worse positions, I am sure.
I would imagine the majority of people in these types of mortgages didn't pay too much attention to the reset info when they first got the loan because they truly believed it wouldn't affect them. That belief was reinforced by the market at the time and brokers wanting to push the mortgages. The guy we went to even told us he would get us out of it as soon as our scores jumped (no bad credit history, just a limited one). Now of course he is nowhere to be seen. Go figger.
Also, I'm not sure what you mean by sweetening the deal. The mortgage company would have made money off of us even at the low teaser rate, wouldn't they? Our low teaser rate (if you can call it that) is 7.45% so I would assume the mortgage company are making a fair amount of money off us now. It is due to jump to 9 or 10%. I understand that it is riskier for the banks to lend money out to sub prime and this is why they charge higher rates but why so much?
"If nothing else, I guess I learned the hard way and I will just have to suck it up until things improve and I can re-fi. I just wish I knew when that was likely to be. I really am not expecting any hand outs, just wondering how I can salvage this situation. I am not currently in a position where I am likely to lose my home, yet. Just worried about that darn reset in July and December."
I'd shop around for more re-fi options if I were you. And have an attorney advise you on your next mortgage - it costs a few hundred bucks, but then you have someone on your side to whom you can direct questions.
actually, a nice little recession might be just what you need. I heard talks this morning of the fed easing another .50% as their next move. That won't translate directly to mortgage rates, but should help those short term rates.
It does sound like you had a "shady" mortgage broker - he was just making money on the transaction. He has no incentive to make sure you could actually pay for the loan - he just needed someone to approve it.
One thing that could save you would be some equity, but I am sure if you had that you wouldn't have gone the route you did in the first place.
Thanks, I appreciate the advice. No equity - at least I don't think so. We had an appraisal done a while back which came in very low ($25,000 less than we paid) but there was some concern over comparables and the appraisal didn't seem correct according to the mortgage company we were trying to re-fi with. I think we will just have to continue shopping around to see if there are any re-fi options. I think getting a lawyer is good advice.
It's frustrating when you don't understand how it all works on the larger scale. Trying to educate myself on all of this stuff ( probably a little late now) and it's not easy! Good news is, by the time I'm done, I should be an expert..lol.
Again - thanks for your patience and for answering some of my questions!
one of the other methods is to borrow your down payment as a 2nd mortgage, with a shorter payback term (5 years or so). This does require 2 payments for a number of years though, and you still have to qualify for the 1st mortgage with that much of a debt load. It would probably make your payments go up even higher than they are now.