by Cireal Americanus & Sunny Hope
At the risk of exposing aspects of my past that I have long since let go, have you ever woke after a “Long night” and wondered, “How the Hell did I get here!?”
At this point in time, there are approximately 3 million Americans that feel or will feel that way by the end of this year. These are the 3 million Americans that will have their home go into foreclosure because of their inability to satisfy their Mortgage loan. Something many never saw coming or thought possible. Many first time home buyers and a disproportionate number, approximately 40+ % that are people of color.
This tale of woe began with the fact that no one is regulating the markets in which the Financial Institutions are operating. Of course there is the SEC (Securities Exchange Commission) but there are no guidelines that penalize a Bank for selling a bad loan into the market. One could consider this an oversight or by design, depending on your school of thought and/or point of view. Considering this is a Trillion dollar market, I would guess by design.
A bad loan starts with a Bank/Financial Institution that puts that person on TV, makes a phone call, sends a spam e-mail or distributes Flyers telling a potential home buyer that they could own their own home no money down instead of paying rent. Looking to get their piece of the American dream, they call them up and are invited down for a “Consultation”. In the meeting, they review their credit and job history and “Pre-approve” the buyer in spite of the fact they may have 10 credit cards that are maxed-out. (FYI – Because Banks use indicators like FICO (Fair Isaac Corporation) scores and Debt to Income ratios to determine appropriate loan amounts as well as a borrowers ability to pay a debt, 10 credit cards maxed-out is BAD!!!!) The Bank/Financial Institution gives the buyer an ARM (Adjustable Rate Mortgage) that may start off at about 5-6% interest for the first 3-5 years and can increase to what ever the “Fine Print” states, i.e. the Prime lending rate (Prime) + whatever. This means that a monthly $1000.00 mortgage payment can go as high as $1500.00 – $2000.00 per month. The buyer who was just barely making their payments at 5-6% will soon find they have a lot more month at the end of their money.
In the past, Credit Rating Agencies, e.g. Moody’s and Standards and Poor, were responsible for ensuring that prior to a loan being made the recipient could pay the loan back or the “Risk” of them not paying back the loan was low. Now we find that many credit rating agencies are in bed with the Banks/Financial Institutions. They approve loans on people whose credit is not at ground level but has begun to tunnel underground and whose income level makes it virtually impossible to make payments on their loans, e.g. approving a low 5 figure a year income earner for a high 6 figure house. The loan is made by the Lending Bank and then bundled together with other loans, a process called Securitization, and sold to another Bank/investor for the upfront cash. This is where the original Bank and credit rating group wash their hands of the liability associated with the deal. In other words, “they got they money and gone!!”. This leaves the investing institution holding the bag on a bunch of bad loans…..or does it?
Many of these Investor groups/Banking institutions then turn to groups like the Federal Reserve and U.S. Government for help in paying off the bad loans they just acquired to the projected tune of Billions of dollars. So now these lending institutions are covered for buying a bad loan..
This seems like a Win/Win for all involved. Right? Wrong. The home buyer, a.k.a. the Victim, is without a home and the American Taxpayer is left to foot the bill. In many cases, the home buyer is a person of color . A victim of “Predatory lending”. Predatory lending is the practice of taking advantage of a group based on their Naivety and/or desire to obtain the American Dream with little to no resources or qualifications to pay for it.
What can be done?
Make sure you get the right Mortgage Loan for you, i.e. Fixed, ARM, Reverse, etc. Understand, ARMs are not EVIL. In fact for some they make a lot of sense, i.e. for those who move quite frequently (Military, Corporate Employees who gets relocated frequently, etc.).
Don’t “buy down” points. This is a practice where the barrower literally pays to get the interest rate lowered. Don’t fall for it!!! Shop around for the Bank that will give you the most competitive interest rate…..without having to buy-down points. A little comparison shopping will save you Thousands of dollars. Be sure to get the quotes and validity period of the interest rate in writing…..documentation beats conversation every time.
Ask questions until everything is CRYSTAL CLEAR! Don’t sign anything without reading everything first…..especially the fine print…..and all your questions have been answered to your satisfaction. Remember, they, i.e. The Real Estate Agent, The Mortgage Broker, Bank, etc., work for you and no one gets paid until you sign on the dotted line. After all, you are the one who will have to live with the outcome, good or bad, for the next 30 years.
As a community we need to educate our selves to the process. Often times we leave our futures and opportunities to “Chance”. “Chance” has never yet satisfied the hope of a suffering people. Action, self-reliance, the vision of self and the future have been the only means by which the oppressed have seen and realized the light of their own freedom.” Marcus Garvey.
This implies that we must make a plan and investigate before we make this life changing decision. There are many “reputable” Banks, churches, and Credit Unions who offer Home owner seminars that you can attend. These seminars provide a basic overview of the home purchase and financing processes. Your state board of Realtors as well as the SEC can provide information on whether or not any actions or cases have been filed against a particular groups or agency.
Knowledge is power and the openness to share this knowledge with others will shift the tide. Pass this on…………..