There's a fierce debate going on right now.
It's a national debate but reaches right into my area.
It's going to have an influence on the home loans that happen right here in Contra Costa County.
It involves the collapse of the sub prime lenders.
It involves the coming rise in foreclosures.
It involves politicians.
It involves activist groups.
And most importantly it also involves you!
The debate revolves around whether or not the government should step in to help bail out the homeowners in trouble.
The media is going to grab a hold of this issue and play it for all it's worth. It makes great headline material.
The good guys and bad guys are all clearly identified.
On the White Hat side we have the politicians and community activists. Always looking out for the little guy.
As for the Black Hats...
We have the Sub Prime Lenders and the lying, cheating, stealing Mortgage Brokers to shoot at.
The media is also going to point at all the bad loans that were originated.
Loans like...
- Interest Only Loans
- Stated Income Loans
- No Doc Loans
- Adjustable Rate Loans
- Payment Option Arm Loans
As your following the story in the media just remember what my Grandfather used to say,
"
That's one side of the coin, now let's flip it over and read the other."
What's on the other side?
Here's a couple of snippets:
- Those five loan types listed are not Sub Prime, they could be, but they could also be for people who have great credit scores. Having one of these loans does not mean you have a sub prime loan. You could have a 30 Year Sub Prime loan as well.
- The amount of principle not paid down during the first couple of years of an Interest Only Loan is very minimal. As an example a $417,000 loan amount at a 30 yr fixed rate of 6.25% would have a payment of $2,568. Over 3 years that borrower would have paid out $92,488 in payments and paid down his principle just $15,623. The same borrower, same example, Interest Only would have had a monthly payment of $2,172 ($396 less). He would have paid out only $78,187 in payments over the 3 year period ($14,300 less). Since most people keep their loans for 3 to 5 years it's not as critical as the media would suggest it is.
- Mortgage Lenders, Mortgage Brokers and Loan Originators are not the only ones to blame. There's plenty more responsible parties. (see http://www.patagoniafinance.com/2007/01/conspirator-or-patsy.html)
- The problem is not that these are bad loans - it is that they were sold to the wrong people for the wrong reasons.
Ultimately, it is the change in payments that will catch the unwary borrower and throw them into the foreclosure pile. That can be in the shape of a short term fixed rate like a 3/1 ARM or it could be the recasting of their Payment Option Arm, where their minimum payments might triple!
So as you discuss the topic with your co-workers around the water cooler, remember this one thing:
They are only hearing one half of the story.
;)
;)
