Mortgage Updates

Main Street seemed to cheer the Fannie / Freddie $200 billion bail out last month.  However, wary investors were not surprised that the sharp drop in interest rates was so quickly reversed in the mortgage markets.  After an initial sharp fall with the bail out announcement, rates rose quickly and are now even higher than before the influx of government monies.

The problem is that other pressures also affect mortgage rates.  And, the move to bail out the banks with $750 billion created a "safer" investment opportunity with Federal Deposit Insurance.  This effectively drew investors who would otherwise have bought Fannie/Freddie securities. Fewer buyers, requires enticement.  The enticement is a higher rate of return- higher rates for you and me.  With further deterioration I would be surprised if interest rates did not rise to over 7% by the end of the first quarter of 2009. - Now I will diverge.  I have held back on politics.  However, I must speak out on this issue since I have seen it in action and the consequences.

But, first let me say that I am the first to work with first time homebuyers.  They have been the heart and soul of most of my mortgage career.  It is so rewarding to help folks buy their first home.  And down payment assistance available to moderate income homebuyers has helped to make this dream a reality.

However, what you need to know is that this mortgage crisis was really caused by political correctness forced on the mortgage industry by Democrats during the Clinton years.  Was there greed in the industry as well? Of course, from the lender to the Banker to the investment houses to congress to Fannie and Freddie where huge bonus's were paid to top executives while the books were cooked.

The philosophy was that everyone should be able to own a home. -A noble gesture - but, faulty.  Not everyone is a home owner.  Let's face it, some folks should continue renting rather than buy. 

I saw first hand how the guidelines were changed for low and very low income loan applicants.  Credit scores were not required.  Buyer's who hadn't used credit (didn't have enough credit to get a car loan or credit card) were allowed to establish "alternate" credit through documentation of 3 verifiable sources and a rental history.  Those sources could include; rent to own; cable bills; utility bills; auto insurance.  These buyers were also subsidized by receiving funds for the down payment. 

Many of the potential buyers I interviewed never had a bank account.  Which in itself is no big deal.  However, there is a significant difference in managing a bank account to pay all your bills.. and working off the cash from a paycheck.  When a buyer becomes liable for repayment of a $100,000 - $150,000 mortgage plus property taxes, insurance and the other bills associated with ownership - water, sewer and garbage bills to name a few juggling a budget is critical to success.

When it came to income qualifying, Lenders had to consider welfare payments, unemployment benefits.  Borrowers could also use "stated" secondary income up to 1/2 of the primary borrower's documented income (not to exceed $1,200). This "stated" income could come from babysitting, or cash labor, or any part time party plan sales job. (Or, anything that made sense.)  -Would you be surprised that the buyers that didn't qualify under these liberal mortgage guidelines, applied and bought their homes through the Acorn program?

The root of the mortgage problem started as "noble" then became cruel when these buyers without the income or credit worthiness lost their opportunity at the American Dream through inexperience and mismanagement.

Third party validation (regarding the Democrat's involvement) can be found at Truth or Fiction click here

As always your comments are welcome....