I saw a news clip last night where a state rep was discussing all the people facing foreclosure and increasing ARMs and ‘predatory lending’. Now I don’t know about you but I think of predatory lending more in the realm of 20% interest per month car title loans or payday advance loans. I do believe some of these are predatory but I also believe that the people who take these loans out normally have such bad credit that there is no other source of funds for them. The folks making these high interest loans are taking a huge risk giving such people cash. It’s debateable (and is being debated in many states) as to what a ‘fair’ interest rate is for such high risk lending.
But back to mortgages. Is it predatory to charge 9 or 10% to a borrower with a 550 credit score, multiple mortgage lates, and maybe even a bankruptcy in the past? Not that long ago, prime borrowers were paying 9%. Around 1987 when I bought my first house (owner occ, good credit), I paid 9.5%. Is it predatory to make a 2 year ARM loan to someone who is an adult, can read, can make decisions for themselves, and is clear on the terms of the loan? I don’t think so. The fact that these loans may adjust after the fixed period is a risk these borrowers (mostly) decided to take in order to get a lower initial interest rate. No one knows where rates will be two years down the road or what property values will be. Indeed, some areas that are not prior hot bubbles are still slowly increasing.
These politicians and talking heads throw words like ‘predatory’ around to news cameras in order to get into the spotlight and appear to the masses that they are ‘doing something’. In my experience, everything is laid out at the closing in the documents. Perhaps these documents are not the easiest to read or understand but the information is there and not hidden and with a little effort, easy to find. The attorney or notary is there and is being paid to explain anything that the borrower has questions about. Adults entering into contracts need to read what they are signing and not scream after the fact that they were lied to or taken advantage of by ‘predators’.
3 Comments
August 20, 2007 at 10:26 pm
I agree with you 100% The loan docs are not that hard to understand either. If you have an arm there is a document called a arm rider. You have to sign it and it is notarized as well. This doc will clearly state how long your rate is fixed for
August 21, 2007 at 12:28 pm
I agree with you. Buying a house is adult time. Investigate your options and buy what you can afford. I was preapproved for 150 grand more than I spent when I bought two years ago. Why?? Because I knew that I coulnd’t afford it.
I think that 90% of the people complaing now are the same people that live beyond their means carrying balances on multiple credit cards and leasing luxury cars.
September 26, 2007 at 1:00 am
My father purchased his house over 35 years ago and was retired, living on social security and a small pension. He had a tiny mortgage loan and my sister decided she wanted to buy a house and my father took out a loan on his house for about 175k. He was in very poor health and could hardley read, however a broker set up an ARM account for him that he of course will never be able to pay back and my sister, the twit, I am sure will not be ale to either. I found out about all of this after he died six months later. My mom is now stuck with this loan, that my sister is helping her pay and there is no way she can get a decent loan by refinancing because she is also retired and has very little income…..I think all loans should require income verification, because I know for a fact there was no proof of income for this loan!! That is poor lending practices…
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