30-year fixed rate mortgage gets its sexy back

Mortgage and Lending with Millenium Home Mortgage LLC NMLS # 132253

Someone asked me for an interest-only rate the other day and I was a little shocked.  Mostly, people have heard and read enough about the problems in the mortgage industry to steer clear of ARMs and interest only loans.

There is a place and time for those loans.  There always was, but never the nearly 50% share of loan originations they enjoyed during the exotic loan heyday.  About 5% would be correct in my market.

A 30-year fixed is a great, safe loan program.  A 15-year fixed is even better provided the payment is affordable.  Perhaps this is not the loan that Warren Buffet would take, but most of us cannot pay our mortgage loan off in a pinch.  Security and stability should be the first concerns with perhaps the largest debt of our lives. 

Why were exotic loans so prevalent?  Simple, triple the profit for loan officer and mortgage lenders.  A 30-year fixed rate loan is easy to shop and compare.  Pricing is very competitive and margins are narrow.  Some loan officers, usually at their companies direction, developed slick sales pitches to trick people into exotic loan programs where interest rate competition was no longer a factor and profit margins tripled.

Mr./Mrs. Homebuyer, you qualify for an exclusive loan program reserved for only the most qualified people and you are obviously smart and savvy enough to recognize this excellent financial opportunity. The 'interest' rate is 1% instead of that stodgy old 5.75% 30-year fixed.  That was your father's loan program!  Your neighbors will revere and envy you!

-If the borrower read the papers, and no one did, they wouldn't have understood the loan terms.  The person they asked to explain them - the loan officer - has a stock of canned responses to steer people away from the pitfalls and remind them how smart the were to select this wonderful new loan program.  (by the way - the loan officer rarely understood the terms themselves, they just sold it)

People were betrayed by the loans officers that they trusted to guide them through the mortgage loan process.  Many of those shady loan officers and many companies, including some very large ones (Wachovia, Countrywide and Washington Mutual were deep into Option Arms), are out of the mortgage business now, but some still survive.

I wonder what the next scam loan program will be?  For now, it is the bait and switch business, offering a low interest rate they could never actually provide and then coming in days before closing with the real rate, a higher rate of course.  Guess what?  Consumers have little legal protections against this.  Consumers - be careful.  If you cannot be sure you are dealing with a reputable person and company then move on!  Big is not safe, we have all learned that and if the deal sounds too good to be true - you know that it is! 

In the age of cyberspace, running a local mortgage company is perhaps novel.  But my customers all know where to find me.  I am involved in many local organizations and out there in my community every day.  For ten years I have been putting people first and I never engaged in the exotic loan business.  I own my company, Dominion's reputation is tied to my own - there is no difference.  Many loan officers are changing companies these days.  You have to wonder why.

Get information online, then get your mortgage loan locally.  There are honest companies that are not local, but it is just not worth the chance.

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