Before I left Irvine, California and moved to Greenville, SC I briefly considered buying a 3 bedroom town home with a 2 car attached garage. It was stupid expensive. I knew I really could not afford it and I knew that it was dangerous to even attempt to make it work out, as my gut was telling me that the market had peaked and I would have been buying into a bubble ready to pop.
Just to appease my curiosity I contacted a mortgage lender in the area to gain an understanding of what my payments might be on such a purchase. This lender came at me with all his fast-speak, double-talk and showmanship. He proceeded to tell me the great news that I had “options” when choosing to make a payment each month. If I “had a slow month” and really couldn’t afford much, I had the “option” of making a low payment on the property. Then, next month when my finances were way up and shooting through the roof, I had the option of paying a bit more. In fact, I had three different payment “options” each month to provide the ultimate in flexibility for my own home ownership enjoyment!
So, when I asked him to confirm that the lowest payment was actually what is called a “negative amortization payment”, he simply could not or would not say those words to me. He insisted on saying, with a huge smile over the phone… you’ve got “options”.
Of course I could barely afford to make the negative amortization payments on this over-priced town home, had I been dumb enough to make the purchase, but hey, buck up little camper, turn that frown upside down, cuz’ I’ve got “options”!
The three house payment “options” he quoted me were simply part of an “Option ARM” loan as follows:
- Negative Amortization
- Interest Only
- Principal and Interest
He just couldn’t say these words as they didn’t sound as simplistic, fun or as sexy as telling me that no matter what my financial situation was at any given time, it’s OK, because I’ve got “options”.
I’m not someone who blames the current subprime mortgage mess entirely on mortgage lenders. I believe others should be taking the blame too, such as the banks who created these loan products in the first place and then made them available to the brokers to go out and sell them to the general public.
How about the consumers at large who bought more home than they could realistically afford?
However, this one incident really stuck with me as I couldn’t believe how “full of it” this particular mortgage lender was! He sounded like he did this all day long and he only needed to tell me what I wanted to hear. Not the truth. Not a consultation on the best thing for me. Just shove an Option ARM down my throat, put a spin on the clear facts and definition of the various payments and get on to the next fool who would buy what he was selling!
I do think consumers should be held responsible for their decisions. However, maybe this guy got to a lot of home buyers who didn’t scrutinize what he was saying the same way I did. If so, I can understand the argument that perhaps they were not well informed about the realities of the loan products they were buying into.
I think it is certainly worth considering!
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