Daily I see newspaper articles about families losing their homes because of the pandemic and the loan they have is more than what they can pay.
They don’t know how it got out of hand. Let me tell you how I bought my home in comparison.
In 1990 when I bought my home it was sold to another Mortgage company between 1 PM on 31 AUGUST 1990, the day of closing, and 9 AM the next morning.
I know because myself and the Loan Officer had a handshake deal that I would be able to set up a direct payment because I was scheduled to depart in a few weeks to Saudi Arabia for Desert Shield (pre-runner to Desert Storm).
By the time I arrived, it was sold and no one knew where.
It took a couple of days before I was contacted by a Company in South Carolina where that automatic payment was illegal.
I went to the originating company and threatened legal action and they renegotiated the sale to another company where I could make automatic payments.
Later when I retired in 1992 I went into Real Estate Brokerage and found I was able to get people approved that I was sure did not qualify.
I was told by the Mortgage Brokers that they had special funds for them, besides when they packaged 20 loans into an investment package the 2 or three “maybe loans” were just fine.
They probably were until a new factor went to work. That factor was “attrition”.
My 1990 loan was a VA loan at 10.5%. In the mid 90’s I, and most “qualified” mortgage holders, refinanced our loans at the 7% rate. That left only the shaky 10.5%s in the original package because when we refinanced we left the package.
To make those shaky loans look so good at the start most were annual adjusting (UP only) loans.
While the lenders and investors of those loans could have called the person in when they recognized the problem, and renegotiate the loan at a decent fixed percentage, they didn’t, and eventually, the loan caught up to them.
Then you add in the fact that as the home has appreciated over the years based upon the new cost to build, and market conditions the property taxes have risen just about every year.
The required Homeowners policy protecting that home, which is also based upon replacement value, also went up. How much!
In 1990 when I purchased my home at 10.5% my total payment to the mortgage company for the Mortgage payment, Insurance escrow, and Property Tax escrow, was about $570.00 per month. Today with a 7.5% loan it is about $794.00. Since my community has just “reappraised” all homes in the community I can expect that the payments will also go up again.
So let us not be too harsh on “people who took loans that they couldn’t pay for”. They had no way of knowing what the Mortgage lender was going to do with their loan.
They had no idea that the property taxes and Insurance payments would go up so high. Mostly they didn’t understand why if they were qualified to borrow at the 10.5% rate they were not qualified to borrow at the 7.5% refinance rate. Same job, same bills, same person, but now not qualified.
Who is at fault? That is the question. The Mortgage broker who wrote the loan is probably gone. The investors and mortgage service companies are probably sold, resold, and maybe gone by now.
I have heard suggestions from “legal action” to “the hell with them”.
I have not heard rewrite the loan at 7%, add the back owed to the loan, and freeze the property taxes till the Depression is over.
Costs nothing but a clerk’s time, but loses the “vigor” as they say in the Loan Shark business.
What do you think?