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Nightmare Mortgages...continued (pg6) |
So far they have stayed out of the fire. The couple, who are in their 30s, bought their first home, a 100-year-old farm house in Portland, Ore., in October, 2005, with a no-money-down loan for $200,000 from GreenPoint Mortgage, a unit of NorthFork Bancorporation Inc. By May, the value of the house had soared to $275,000. Rather than sit tight as their grandparents might have, the Bachmans, with an annual household income of $70,000, took out a home equity loan to put a $30,000 downpayment on an investment property in an up-and-coming neighborhood nearby. They pay a minimum of just $825 on their new $191,000 mortgage, and rent the house out for $100 more than that. Sooner or later, the payment will rise. Then they'll have to raise the rent to stay in the black. If the still-strong Portland housing market tanks, they could find themselves in deep trouble. It's a risk they say they're willing to take.
Public policy has yet to catch up with the new complexities of the lending industry. Comptroller of the Currency John C. Dugan, the banking industry's main regulator, wants banks to clean up their act. A source inside the federal Office of the Comptroller says Dugan intends to raise lending standards, as he did last year on credit cards, where super-low minimum payments made it improbable that cardholders would ever pay down debts. New guidelines are expected this fall.
Fair-housing pundits suggest that mortgage lenders follow the lead of the securities industry and require that mortgage borrowers be not only eligible for a product but also suitable -- meaning the loan won't impose hardship. Says Consumer Federation of America's Fishbein: Buyers have to have a "reasonable prospect of being able to handle the payments, not at the initial rate, but [assuming] the worst-case scenario."
So far, banks have shown little desire to raise their standards. In February, Golden West announced it would raise its minimum option ARM payment to 2.6% of the loan. In March, Golden West's Sandler wrote a nine-page letter to the Office of Thrift Supervision decrying the lax lending standards he was seeing. "Foolish lenders who eventually stumble under the weight of their missteps will bring down innocent borrowers with them and leave the rest of us to clean up the mess," he wrote. But on May 7, Golden West announced it was selling out to Charlotte (N.C.)-based Wachovia Corp. ( WB ). By June it had dropped its option ARM rate back down to 1.50%. Sandler says the rates were changed according to the bank's interest rate outlook.
Analyst Frederick Cannon of Keefe Bruyette & Woods says most banks don't apologize for their option ARM businesses. "Almost without exception everyone says [the option ARM] is a great loan, it's plenty regulated, and don't bug us," he says. In an April letter to regulators, Cindy Manzettie, chief credit officer for Fifth Third Bank in Cincinnati, said it's not the "lender's responsibility to help the consumer determine the appropriate payment option each month.... Paternalistic regulations that underestimate the intelligence of the American public do not work."
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Why Use a Tierra Capital Corp Agent/Loan Officer This article has been provided to you for information purposes only. We (at TCC ) believe that are many beneficial reasons for our clients to obtain Option ARM loan products. However, we further believe that it is most important for our clients to understand the pros/cons of this type of financing. In order to determine if an Option ARM product is good for you, please contact your Tierra Capital Corp Agent/Loan Officer. |
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Traditional Realtors and Mortgage Brokers spend the majority of their time seeking new business from the general public by knocking on doors. This does not allow them to adequately serve their clients' needs. We have chosen to conduct our business in a different manner. We are dedicated to building strong, lifelong relationships with present and past clients one client at a time. |