Did you know most of the foreclosures taking place now
could have been avoided? With all the foreclosures taking
place because of adjustable rate mortgages (ARM's), this
could have been avoided if the lender had put families in a
30yr fixed mortgage. During the real estate boom,
individuals that had less than perfect credit were put into
sub-prime loans. There were millions of families put into
sub-prime loans that had the qualifications to go FHA,
which is a 30 yr fixed mortgage. The reason why was because
there were many mortgage companies that did not have the
necessary funds to get their license to originate FHA
loans. So the mortgage company had no choice but to stick
their client into a sub-prime ARM loan. Was this unethical,
I would have to say yes. Also the mortgage companies that
were sticking people in 2 year Sub prime loans sold
everyone on 2 yr ARMs when they could have put them in a
30yr fixed sub-prime loan. Here is what took place.
2 year ARM sales pitch. Here is what mortgage companies
sold to potential borrowers. Sir or Mam you don't have the
credit to go with a prime conventional loan but we can put
you into a 2 yr ARM. With good credit history we can
refinance you in 2 years into a 30 year fixed mortgage.
This is what was being told all over the United States.
Guess what? These people could have been put into a 30 year
fixed sub prime mortgage as well. But the rate was lower on
a 2 year ARM, and the lender made more money selling the
ARM loan. Also the lender would get there business again
two years down the road. So it was like machine during the
real estate boom. This is the secret that lenders did not
want you to know, and most of them never gave the option to
the potential borrower.
The builder problem During this boom the builders were
doing more than selling 2 year ARMs, they were selling low
payments. They would sell all these bogus incentives to use
their mortgage company and along with the bad loan they
were put into they sold them on low payments because of the
un-improved taxes on the property. Yes there was this
sneaky disclosure used to explain un-improved property
taxes at closing, but they blew through it so quick the
borrower never really understood it. Also the loan officer
providing the loan never explained the repercussions of not
collecting escrows for the mortgage. Most of the 2 year
sub-prime borrowers with builders did not escrow their
taxes and insurances. That is the other way they were sold
on this whole process. During the excitement of this whole
process, the borrower did not see the danger down the road.
To talk a little about un-improved property taxes, here is
how that nightmare works. When you buy a property, the
taxes on the property if it's a new build is usually based
on the land only. That is why the taxes and along with you
payment is so low. But guess what, you will have an escrow
shortage in about a year. Which means your payment will go
up around $300 to $400 dollars. This is part of the reason
for the foreclosures as well. Builders pretty much do what
ever they want due to a lack of good legislation.
2 year ARM is up Your 2 year ARM is up, and you now have
two problems. First you cannot refinance because you don't
have the credit. Second your property value has declined
and you don't have the equity to roll in closing costs
which is required to do a refinance, unless you have the
money to pay all your closing costs. Since you cannot
refinance your payment jumps up around $400 dollars and now
you cannot afford your home. This is what is going on all
over the country.
This is a example of how greed is going to destroy our
country. It's unfortunate that our lending industry took
advantage of people. This is going to affect us for a
while. If you found yourself in this situation, the best
thing you can do is work on your credit, and make sure you
pay everything on time.
Check your free credit score report often so you know where
you stand credit wise.
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About the Author: Mike Clover is the owner of
http://www.creditscorequick.com/ . CreditScoreQuick.com is
the one of the most unique on-line resources for free
credit score report, fico score, Internet identity theft
software, secure credit cards, and a BlOG with a wealth of
personal credit information. The information within this
website is written by professionals that know about credit,
and what determines ones credit worthiness.
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