Money Today

I'm sure everyone is reading in papers across US and even the world about foreclosed homes. This is a very dramatic situation for most families. Many are still working, but just can't keep up with bills this situation could have been prevented.

Some probably lost jobs and can't make the payment this situation is more difficult since losing a job usually isn't your fault.

Not being able to afford higher payment could have been prevented very easily. When I worked as a loan officer I lost quite a few loans to my competitors since they had a "lower rate" than my loan.

However, I knew most of these loans had an adjustable rate, but the customer did not care. They wanted the lowest possible payment and could care less how that happened. Well jump ahead three, four years later and now the rate is going higher than my rate. Now I can't do anything to help since they may be behind on a payment or have little or no equity.

A lot of these adjustable loans were interest only loans. Which means you are only paying interest and nothing on principal of the loan. So you borrowed $400,000 three years ago and you still owe at least $400,000, possibly more if you missed any payments.

This is not a good situation if you want to refinance your home since most banks will no longer do 100% financing. In fact the company I worked for now requires at least 90% equity and sometimes 80% before they will approve the loan.

This could have been prevented since the customer could have locked in a fixed rate which was usually only .5% to 1% higher than the adjustable rate. They also would have at least paid something on the principal.

With the current mortgage crisis it is easy to play arm chair quarterback and say "see banks screwed the customer" OR "see the customer was stupid and should have known what they were buying."

Personally I'm split probably about 60% of blame goes to bank or mortgage broker since they should have educated customer about ups and downs of loan. I came across quite a few "loan sharks" who would say anything to close loan and flat out lie.

However, customers were blinded by rate and payment. That's all they thought about.

Once again not all banks or mortgage brokers took advantage of people, but there were enough. Remember the Law of Large Numbers.

You do enough of any activity and eventually you'll get a certain outcome whether it is good or bad. Your children hang around bad kids and eventually they will become bad kids.

LESSON: Use the three day review of loan which government gives to look at loan documents. In future posting I'll go over which one's to look at. Only about 4 pages, the 50 you receive at loan closing.