Monday, February 12, 2007

Lender (mortgage) laws reworked -- The mortgage nanny

Have I gone liberal? I read this article today and I am so glad that the Democrats are looking to rework the lending laws. This is great...but does it mean I have gone liberal?

Primarily, this bill will put responsibility on the lender to ensure the loan they are giving is suitable for the people. Normally I would disagree with a bill like this. Mainly, I would have, in the past, disagreed with this for two reasons:
1) I don't want the government interfering with private business with more laws.
2) This seems to open up for more potential lawsuits, which means we will all pay it in our mortgages.

Now, first let me say my mother was in the mortgage business for about 10 out of the last 11 years. So, nothing personal against the people...but the majority of mortgage brokers are all about one of two things:
1) Making as much money off people as possible.
2) Helping create an ownership society, where people can own a home instead of rent.

That may sound overly simplistic...but I honestly believe that is it. If a mortgage broker is in the latter category, they surprisingly align with many conservative values. Conservatives are about an ownership society...letting people have the money and developer wealth on an individual basis. If they are helping people, this won't be a burden to those people.

I believe that the majority of the mortgage brokers are in the first can I make the most money off people. I have been appalled by stories from friends lately of what people are offered. Here are some examples:
- A friend was offered an 80/15 fixed/adjustable mortgage for 6/8% APR...when that fell through, the broker magically found a much better alternative... a 80/15 fixed/fixed for 6/7% APR. If you don't know what these mean, feel free to write me and I will clear it up.
- Another friend closed on a house a month later with a 75/20 fixed/adjustable for 6/9%. Why 75% and 20% instead of 80%/15%?? The only thing I can figure is the mortgage person found a way to make more money.
- Another friend thought they were getting their dream home....but after they closed on an interest only mortgage and can't afford to pay principal...they realized they all they can do is hope the house prices in the area go up.

I have noticed other tricks the more my friends by homes. One lender, Bank of America, is offering a 100% mortgage at 3/4 of a point over the going 30 yr rate...which means instead of paying PMI or a split mortgage until 20% is paid off...they will pay that 3/4 point for 30 yrs or until they refinance. How is that justice? Their monthly payment is lower...but the overall life of the mortgage is higher.

The bottom line is, as I see it as a late 20s guy whose friends come to him for financial advice from time to time...a lot of my friends have been or are potentially getting fleeced by the lending industry. This is not creating an ownership society.

So, back to my original I becoming liberal? No, I don't believe I am. Like it or not, people are not well informed enough to know how the lending industry works and the lending industry does it on purpose. I support the current lawmakers making the government a bit bigger in this particular case because I believe that these laws may allow people to save and own more in the long run....and thats important to me so that when my generation is old, my daughter doesn't need to pay high taxes in order to support my generation which is blowing all of their money and won't have enough money or own enough later in life.

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