Today at my weekly morning office meeting a representative from Wells Fargo was reviewing all the different loan programs that are available to our buyers. As he reviewed the programs one in particular caused murmurs and quick remarks to each other under are breath. To give you some back ground our office meeting has 50 plus real estate agents, a couple of bankers, a few title insurance reps and various venders. The Wells Fargo rep is a well respected and trusted banker that is a fixture in our office and the Orange County real estate market.
The loan program caused such a reaction because it has haunted many, many people and in my opinion was the beginning of the end for the country's real estate whoes. Ever since the banks risky lending practices led to the financial meltdown the banks lending attitude has been very conservative, basically only giving 30-year fixed loans and making the borrower qualify for the whole payments including tax. At the extreme end of the scale just a few years ago you could get a loan based on a payment that was temporarily low for a few years. When the payment went up it didn't matter if you could afford it anymore.
Well, it's back. Today Wells Fargo announced that it has a 5/1 ARM and will qualify you based on the teaser payment. In simple terms your first 60 payments or 5-years are a lot lower than your last 25-years payment. This alone is not the issue, when the bank allows the borrower to qualify for this loan based on only the first 60 payments is defiantly a problem and in the risky lending category.
I would have bet you a million dollars that the banks would never ever do this type of lending again in my life time but, here we are. I just hope that this type of lending doesn't get out of control again. This is exactly how it started almost 10-years-ago.
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