Cheap Homeowners lo@ns (Mortgages)

ukbobboy01 · #1 (**permalink**) October 30th, 2007

Dear Forum Members

As I write this post in the UK I am aware that there are hundreds of thousands of homeowners in Cleveland, Ohio loosing their homes because they can't afford to pay their monthly mortgages. This tragedy has already started to cause a financial ripple effect that could plunge the world into another recession.

Here in the UK a bank/building society has had such a run on its finances that it had to be bailed out by the Bank of England. Mortgage rates and home repossessions have taken an upturn, and this translates into problems for the economy.

My simplistic understanding of how this started was when financial institutions/companies in the US started to aim their adverts at low income people who primarily wanted to own their own homes. And as most decent human beings would say there's nothing wrong with that.

However, these lo@ns that were granted, in most cases, were low starter lo@ns, i.e. for the first two years the lo@n rate would be fixed. And people who are loosing their homes are saying that this was never explained to them because they thought that they were getting long term fixed rate lo@ns.

Now, as an adult in the UK, I have personally come across lo@n arrangers, insurance salesmen etc. that cared more about the commission they were getting rather than my ability to pay back the lo@n or afford the insurance premiums being asked for. And I have also come across friends, co-workers and relatives who have no idea about mortgages, interest rates and how they work.

Therefore, I can only presume, based on limited info, that an army of unscrupulous lo@n arrangers sold lo@ns to people who did not understand the liabilities they were signing up for or were given time to seek an alternative view point of their contract.

In the UK when you sign up for anything you are given, by law, a 30 day cooling off period. However, as far as I understand, this may not be the case in most US states. For example, in the documentary I saw last night, this woman who was loosing her home, because she could no longer afford the mortgage repayments, was given her lo@n during her lunch break. She said that she was told either sign there and then or loose the lo@n, so she signed.

Initially, her mortgage was $625.00 per month, which she could afford but after two years when the interest rates started to go up and she found herself struggling. So when the monthly repayments hit $1,400.00 per month, which is more than double what she started out paying, she could no longer afford the mortgage.

When she was pressured into the lo@n she thought it was a long term fixed rate mortgage, which are not uncommon in the US, rather than a "low starter" where the interest "not paid" during the first and second years, i.e. normal interest rate minus the discount, are subsequently is added back into the following years.

As you can see from my previous paragraph, mortgages, lo@ns, interest rates can be complex things to understand.

However, I do believe that with complex financial contracts, e.g. mortgages, ordinary people should be given a set amount of time where they must consult a lawyer who can explain what they are actually signing up for.

At least with "independent advice" in place people would not loose their homes due to "not knowing", this would be good for America and good for the world.

UK Bob

Peerless · #2 (**permalink**) October 30th, 2007

the flip side of the coin here in the US is the fact that many of these defaulted ****s are the result of speculators having bought up a lot of property and now that the home sales market has taken a downturn, they can't sell, which means they can't pay the lo@n on their speculative iñvestmeñt....pffffft on them!....of course I do feel for true homeowners who are in a crunch (trust me, I am)

wondering why · #3 (**permalink**) October 30th, 2007

The interest rates have been going up here in Oz as well...Apparentley the Reserve Bank is about to hike them up once again and just before the election, which won't do Johny Howard any favours...

Time for a new leader here in the land of Oz...Time for change...

ukbobboy01 · #4 (**permalink**) October 30th, 2007

Hi Peerless & WW

First thing WW, although your PM will be blamed for the hike in interest rates in reality it is actually nothing to do with him. It is basically how financial institutions work, especially in the western world, and how they buy and sell debts between each other.

And Peerless, I believe speculators are little better than parasites. They appear when prices are low and through various dubious schemes push up prices and then hope to cream off the profits before the regulators can catch up with them. Speculators behave like locust and do nothing for the community they descend upon other than to strip it bare.

UK Bob

Remoc · #5 (**permalink**) November 1st, 2007

More sad news. Foreclosures jump 30 percent in 3rd quarter - Mortgage Mess - MSNBC.com.

Remoc · #6 (**permalink**) November 1st, 2007

People are loosing their homes left and right. This is what our government is doing.

.

BBC NEWS | Americas | Bush eyes Mexico drug fight funds

ukbobboy01 · #7 (**permalink**) November 1st, 2007

Hi Remoc

The thing that worries me, and hinted at in the MSN story, is that people did not understand the mortgages they signed up for were low starter mortgages and that there would be steep rises once the "starter period" ended. And if this proves to be true, i.e. the nature of the lo@n was not explained properly or hidden (so that the "arranger" could get their commission) then the lender should be penalised.

Lenders should insure that the people they lend money to can:

a) Afford the lo@ns they are getting.

b) Understand they type of lo@n they are getting, i.e. fixed or variable, low starter, etc.

and

c) Understand what will happen when interest rates go up or down and that they could loose their homes if they do not continue to make repayments.

Because if these three simple points are not covered by the lenders then everyone looses, from the families loosing their homes up to and including the world economy.

However, from what I understand, lo@n arrangers in the US did not care or bother to check whether the people taking out lo@n agreements could make repayments or understood what they were getting in to.

If this is true then something should be done about these "lo@n arranging" predators.

UK Bob

Peerless · #8 (**permalink**) November 1st, 2007

I have the theory that these cases of 'lo@n arranging predators' are not as numerous as being presented...I'm thinking that is what certain parties are putting out so that the public will be more amendable to allowing King George to bail out the investors that got over their heads...I mean really, all of us Americans know that its all about the investors, who gives a flip about the blue collar working man that pays his bills and eschews bankruptcy....

don't mistake me, I feel for some of these people who have gotten caught in the trap of an adjustable mortgage rate, but I know for a fact that some knew exactly what they were getting into...my mother being one of them...thank goodness she actually listened to me and got out of that lo@n as soon as she could...many people get into these lo@ns as they can't afford what they are wanting to buy and base their decisions on a supposed raise they expect to get in the future, not allowing for such concepts as increased costs of energy and durable goods...and for these people I really don't feel that much pity, as when I got my house I ignored the good ol' pressure by the sales people to buy all the house I could get (read max. out my approved mortgage amount) and chose to get something about $20,000 smaller!

ukbobboy01 · #9 (**permalink**) November 1st, 2007

Peerless

I don't doubt that you are correct in your assumption, being a US citizen you are far closer than I to what is actually happening.

However, I would have to say that though people will lie (or stretch the truth) on what they can actually afford they are encouraged to do so by these predatory "lo@n arrangers". For example, you said:

Quote:

thank goodness she actually listened to me and got out of that lo@n as soon as she could

Which is my point, e.g. the person who arranged you mother's lo@n, did that person actually care whether your mum could afford the lo@n or did he/she care more about the commission they were going to get for the "biggest lo@n" they could secure

If lenders said "so much and no more" and did a cursory background check, e.g. statement of earnings from employers, credit check and insuring that any mortgage agreement was verified by an independent solicitor/lawyer, then there would not be so many working people defaulting on their lo@ns and/or mortgages and being thrown out of their homes.

I like you have no sympathy for those that lied their way or fooled themselves into bigger lo@ns than they could afford but on the other hand I feel that lo@n companies and their agents should be penalised for not doing basic "affordability checks" on the people they are lending money to.

UK Bob

Peerless · #10 (**permalink**) November 1st, 2007

oh, there is a budget analysis...and its pretty much standard from what I know...they look at your income, your basic bills and debts, and figure out how much one can afford for their home....IMHO said number using their formula is a good 10% too high...

as noted, I am sure some of the problems people are enduring are real....and the numbers indicate foreclosures are the highest in U.S. history...but unlike in the Depression, many of these foreclosures are against investors...awareness of this fact changes one's perception of what is going on...unlike many Americans I am not fooled by what is being said about the economy...my education and experience indicates we are already in a recession...its not possibly coming, its already here....

I truly believe our current administration which is based upon the "King" as opposed to the worker is the root of this problem....many of the lo@ns never should have been allowed in the first place, whether it be to investors, or people who were given artificially inflated lo@n amounts which didn't correlate to their true incomes....