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Stop The Bleeding – Fix The ARM : A Major Rant From The Lender

LET ME BEGIN BY SAYING: I am on your side. It’s not your fault and I will do everything in my ability and scope of power to help you. But let me also, in this blog posting, be the devil’s advocate and see if anyone who reads this may get a little reality check …

I once heard a preacher say, “You went farther than you wanted to go and you paid more than you wanted to pay.”

Not too many years ago if you did not have a middle credit score (not FICO — MIDDLE) of 620 or higher, a debt-to-income ratio of 43% or lower and at least 10% down payment you had only slim chances of qualifying for a loan to purchase a home.

You moaned, whined and complained – you even cried “foul”. The citizens revolted and the industry capitulated. We gave you The Sub Prime Loan.

Now the masses had what they demanded. Agents were selling more homes, people eyeball deep in debt were doing cash out refinances on the property they had recently purchased to 100% or even 125% of the appraised value.

Oh, the rates were higher. People complained about that. Government officials promised to protect the weak.

Some loan programs, instead of having the once popular 3-2-1 buydown into a fixed rate, had lowered start rates then entered an adjustment period. People liked that! You could, with crappy credit and a louzy job history, qualify for 100% financing with an initial interest rate of only about 1/2 point (.5%) higher than your stable neighbor with decent credit. While your stable neighbor was getting full doc money at 5.5% fixed you were getting full doc money at 6% for the first 2 years then an adjustment period began where your rate was capped at increasing at 2% per year. Capped means “limited to”. In America limited means that’s how much you WILL do unless you can get by with more.

If you got a loan from me during that period you also got a double barreled education that if you continued the lifestyle you had been demonstrating which got you into the position of needing an ARM then I told you when the adjustment period came you would no longer be able to afford to make ends meet because, chances are – I would have told you – your rate will jump to 8%. Not 6.25%. Not even 7.25% but a full 2% jump to 8% so you need to take control of your credit, your spending and your lifestyle and refinance out of this loan before it adjusts and get into a better fixed rate loan.

You didn’t listen to me. I did the loan anyway because you were just going to go down the street and get it and they were going to whack it to you with 5% or 7% origination and bump your rate up another .5% to make another 1% in YSP.

You didn’t listen, your rate adjusted and now you’re in a pinch. You did this to yourself. I told you not to. I’m not the bad guy this time.

You are moaning, whining and complaining – you are even crying “foul”. The citizens are revolting. The industry is capitulating.

Sub prime is looking more and more every day like A paper. Lenders who once would allow you to purchase a new home at 100% of the sales price with a 560 middle score now require at least a 640. Lenders who once didn’t care about seller seasoning (read it and weep flippers) now require at least 6 months. Lenders who would allow cash out refinancing to 125% of the appraised value just days after the purchase now require 12 months to get 100%.

The industry did not do this to you. You begged, you whined and you sniveled. You did this to yourself.

Now you say, “that evil lender let me get into this house when they knew I couldn’t afford it.” Or, “they charged me too much for this loan!” What you didn’t say was that previously you would never have qualified for that loan. NO! You wanted the lender to treat you just like they would treat Bill Gates or Donald Trump. Well, Bill Gates.

States initiated “Fair Lending” legislation to make SURE you got these loans at reasonable closing costs. This change did not affect us (Novation) and other community spirited brokers/lenders because we never had those high cost loans. However there were sharks in the water. The problem wasn’t that the industry needed regulation – it was that you needed education. But even when some lenders provided that to you, you did not listen. You did not heed the warning. No, you got your lower rate that you knew would adjust and instead of planning for that adjustment period by repairing your credit, saving some money and refinancing into a better fixed rate you bought a new bass boat, a Lexus, a 56″ plasma TV with HD satellite and 16 speaker surround sound! You, my friend, owe more than you will earn in 50 years. Sell the Lexus and the bass boat. Keep your home, I think you may need it this winter.

Okay – that was a little rough. In all honesty I want you to WAKE UP! If you are in an adjustable rate mortgage (ARM for those of you in the nether regions) and you are headed for the end of your fixed period, DO SOMETHING ABOUT IT! Your rate will NOT go down. Your rate WILL go up! THEN IT WILL GO UP AGAIN!

If you are currently paying 6.5% and your adjustment period begins in 3 months then on your April payment you will be paying 8.5% – no if’s and’s or butt’s. (Did I say, “butt?”)

If, since you were gifted a loan that during every other period in modern history you would never have qualified to receive, you have squandered all of your income and put yourself in even more debt then you really, come on folks, HONESTLY, need to make some changes in your spending habits and lifestyle. You do NOT want to get into an adjustment rate you cannot afford. Right now money is still pretty reasonable (rates are still fairly low). Refinancing is easier than purchasing and you won’t (shouldn’t) need as much LTV (in most areas of the nation) as you needed when you first purchased your home 2 or 3 years ago. You should have at least a modicum of equity which means you can do a rate and term (no cash out) refinance for a lower LTV which reduces the risk to the lender and results in a more attractive loan solution to you.

Call your loan officer RIGHT NOW! Don’t wait until morning … just kidding. Call your LO and ask what you can do to stop the flow of blood. Seriously, you won’t regret it. And if you haven’t done so – take baby, tender care of your credit. Pay cash for things that go down in value and finance things that go up in value.

I really do care about every citizen of this nation. I cannot make your mortgage payment. I cannot even make you understand why your credit and your education about your mortgage is so very important. Only you can prevent … well, this.

Love,
Ken

P.S. If those words stung it’s your fault