If resetting mortgage loans become a huge problem this year and next, as some people fear, one thing you’re sure to hear is that the big bad lenders are to blame.
The line will be, borrowers had no idea what kinds of loans they were getting, and, therefore, can’t be held responsible for keeping their payments current.
Excuse me if I sound skeptical, but I find it hard to believe that anyone who is smart enough to drive a car, order a meal at McDonald’s, or change channels on their TV remote isn’t smart enough to understand the difference between a fixed-rate mortgage loan and an adjustable-rate mortgage loan.
Outright fraud is one thing – and I’m sure it happened, just as I’m sure that there were loans offered to people who shouldn’t have borrowed. Mortgage bankers can be a sketchy bunch (er, I mean, some mortgage bankers can be …).
Expect big things to happen, regarding the mortgage loan business.
The federal government will hold hearings and legislation will be drafted and passed, and we’ll all forget about it, until the next housing market explosion, when lenders will come up with even more exotic (and risky) loans for those who should never borrow.
And, the media will be all over it, too. Soon you’ll see hard-luck stories about the retired guy who took out what he thought was a fixed-rate ….
Oh, wait … here it is, already:
At 64, and looking toward his retirement next year, Willie Lee Howard agreed to refinance his duplex in Northeast Washington, thinking that a fixed-rate loan would help stabilize his finances.
What Howard got instead was a mortgage he did not understand. Baffled by the loan documents he was mailed after the closing, he consulted an AARP lawyer and learned that he now had an interest-only loan, a new and controversial kind of mortgage. Howard was told that under its terms, his mortgage balance will rise instead of fall and that he will need to refinance in 10 years, when he may be too old to work.
“This is a bunch of junk they done to me,” said Howard, a construction worker.
Of course, taking a close look at the article, you find some holes in the reporter’s argument (and, even, holes in Willie Lee’s story).
An observant reader found some “misinformation” in the article:
Howard was told that an interest-only loan would result in a rising balance. This is of course false, a confusion of interest-only with negative amortization. The reporter does not correct this misinformation. Possibly the AARP lawyer is an illiterate moron. Possibly the AARP lawyer was misquoted by the reporter. Possibly a rather condescending article on how borrowers donâ€™t often understand loan terms has gotten off to a rocky start in the second paragraph.
Things aren’t usually black and white. Unless you’re a newspaper.
** Again, I’m not saying that there were no bad loans written. In fact, I’m not even complaining about the point of the article. What I’m complaining about is poor reporting!!!!! The typical newspaper subscriber will read this article and take it as the truth, when it’s not.
Mortgage-Trapped – By Kirstin Downey, The Washington Post
Information is Power, Which is Why You Don’t Get Any – Tanta (blog)
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