Mortgage Bailouts
There’s a lot of talk lately about the need to save homeowners from the mortgage crisis.
Most of this talk pisses me off.
First off, I want to make it clear that if a homeowner signed a bad contract and got ripped off by their lender, then any government program that helps them keep making their mortgage payments is really just helping the lender.
If the lender ripped off the borrower, then why should the government make sure that the lender keeps getting paid? If you wanted to help the borrower, you’d just help them walk away from their bad loan.
Ah, but it is more complicated than that. And more infuriating.
Many of the borrowers that are in trouble now were not innocent at all in this whole mess. It seemed like the whole country went crazy and thought that we could all make easy money buy buying bigger and bigger houses. People threw caution to the wind, told each other that real estate never goes down, lied on their mortgage applications and borrowed irresponsibly to get those bigger houses. People didn’t read their contracts or didn’t care about the risks because they were in too much of a hurry to get that easy money. Many people bought several houses. It was mob insanity.
I happen to believe that the only way we can all get wealthier is by hard work and innovation. So I didn’t buy into the whole scam, but I was affected by it in a big way. We lived in Los Angeles when the real estate bubble was taking off, and we were just starting our family. When we first moved to LA, we could just afford a condo on terms we felt comfortable with, but we weren’t in a hurry to do it. After G was born we started feeling like we might want to settle down and have a house, and everyone around us seemed to be saying that we better get one fast or we’d be priced out.
Well, we were priced out. We weren’t going to do zero-down. We weren’t going to take an interest-only ARM and pray that it worked out. We weren’t going to lie on our mortgage application. We had managed to save a bit of money, but it wasn’t close to enough. Finally we started to panic and decided we had to leave California.
We went to Oregon where we thought we’d be able to afford to buy a place we liked. We moved up to Portland, rented an apartment and started looking. Over a period of 6 months we were priced out of all of the neighborhoods we thought we liked. We started looking at other parts of town. We saw the value of our life savings evaporating. Eventually we gave up and moved to Texas, where we could buy a place and feel financially responsible.
Of course we finally bought at the peak of the market. Panic does wonderful things.
The housing boom was miserable for us, and I don’t have any warm fuzzy feelings for the greedy flippers that priced us out of the market, or for the lenders who tried their best to rip us off (ask me if you want more details about how RMC Vanguard does business).
I know there is a whole spectrum of guilt out there. Some people were really tricked by their lenders and it would be great if we could find a way to help the innocent. I still think that the easiest way to help them is to make it easy for them to dump their overpriced house back on their unscrupulous lender.
Why should we have an ownership society anyway? Being in debt up to your ears to be a homeowner just makes you a wage slave. I’ll pass on that, thank you.
[Update: Please read this follow-up post too.]
I agree that homebuyers need to be held accountable. One caveat though, is that buyers RARELY get to see the final loan docs until they are sitting at the closing table. Even if they did get a good faith estimate, prior to closing, it is rarely in sync with the final docs. Lenders and closing companies put enormous pressure on people to sign UNREAD documents (or else they lose the deal).
Mark Schwartz
September 25, 2007 at 7:54 pm
That is a good point. I know we didn’t see ours until we were asked to sign them, and I was asking. When we did finally go to closing, the fees were wrong. Surprisingly enough, the error wasn’t in our favor.
There is no way I could have possibly read and understood the entire stack of papers I signed at closing without devoting more than a full day to the task. I focused on the numbers and complained about that (much to the annoyance of the closing company), but must admit that I only skimmed the text. I’m sure I’m not alone.
I think many home buyers were cheated in the boom. Some of them didn’t question things because they were in too much of a hurry to make a killing. Others didn’t question because they were panicking and didn’t want to lose what they thought was their last chance at homeownership. Most people probably fall somewhere in between.
Because the situation is so complicated, I think it is hard to find a just solution for the problems without handling things on a case-by-case basis. I’d love to find a practical way to help the people who need it without encouraging future misbehavior. I especially want to avoid “lender bailout packages”. Any ideas how that could be done?
Rolfe Schmidt
September 26, 2007 at 10:51 am
After reading through the post again, I realize I sounded awfully bitter and down. I didn’t mention that even though our path to Texas was frustrating, it has been great living here. The boys can walk to their grandparents house, there are plenty of great things to do, and it is an easy place to live.
Rolfe Schmidt
September 26, 2007 at 10:56 am
Yes I agreed being in debt up to your ears to be a homeowner just makes you a wage slave but still its the dream of many to own a piece of property.
John Power
October 2, 2007 at 4:12 am
[...] do they really want to bail out? I think I’ve made it pretty clear where I stand on potential mortgage industry bailouts. This pretty much sums it up: if a [...]
Who do they really want to bail out? « Rolfe Schmidt
October 18, 2007 at 6:52 pm
I’d like to hear about RMC Vanguard. We picked them up via Lending Tree and are not sure about them. We’ve got a few other lenders lined up — ING, Century 21 (associated), WAMU and maybe USAA. RMC Vanguard was quick to pick things up and send a GFE that looked pretty good, actually really, with three different setups.
RMC Vanguard is based in Texas, so it’s a bit of a way off from us and we can’t find much to reference them online aside from their own press — maybe they are scouring, trying to remove any negative info out there found via Google.
What can you tell us? Private email is fine if you prefer.
First time homebuyer
October 29, 2007 at 9:14 pm
I’ve gotten a number of requests to expand on my experience with RMC Vanguard, so I’ll just write about it here.
I believe I got a fair deal from them, but I had to stay on their case all the way through closing. At least once I had to threaten to walk away from the deal if they didn’t behave. They will sound very nice and soothing on the phone, and tell you to relax. Don’t do it. Relax when the deal is done.
Here are some of the lowlights of our first-time homebuying experience:
- We got the application in as fast as we could, but ended up with a rate 0.25% higher than what we were offered on Lending Tree. “Markets change”, we were told. Maybe, but they don’t change in quarter-point increments. I doubt that the Lending Tree quote we got was ever real. Then again, I don’t know if any of them were.
- I accepted the rate hike without too much fuss, and the loan officer soothed me by explaining that “we’ll give you one free float-down”, an option to lock in a lower rate if the market changes. Sounds nice, but: they refused to put it in writing and refused to explain the details of how the rate was computed so I could decide when I wanted to “float-down”. I don’t think the float-down ever existed.
- They tried to talk me into an ARM I didn’t want or need. I doubt that will be as much of a problem these days.
- They would not give me my rate-lock in writing, and acted offended when I demanded it. Only when I said I was going to call off the deal did they send me an email verifying my rate. They treated me like I was unreasonable and a troublemaker after that.
- At closing, they double-charged the loan application fee (not a small error). I almost missed it because there was such an enormous mountain of paperwork and our title officer was pressuring us to hurry up. DON’T GIVE IN TO THAT PRESSURE. Demand enough time to review everything properly, and bring a calculator. Make sure you know how to read the documents going in, and get as much of the paperwork for review before you go to closing.
I still don’t know how they could “accidentally” recharge application fees that they demand upfront to get the loan process started.
At the time, I was furious with them. I felt like they were trying to milk every penny they could from me. Now I’ve mellowed out a bit, but I highly recommend that you don’t relax, be vigilant, and DEMAND THINGS IN WRITING!
I don’t know that other lenders are any different. Citibank and USAA were at least 0.6% off on their rate, and that was enough to make the whole hassle worthwhile.
Rolfe Schmidt
October 30, 2007 at 6:57 am
[...] who is really going to be helped by a mortgage bailout. The last two times I ranted about this (I, II), there was no specific plan on the table but I was pretty sure that any mortgage bailout would [...]
Mortgage Bailouts III: The Sucker Trap « Rolfe Schmidt
December 7, 2007 at 6:19 pm
I don’t have any sympathy to the buyers that did not read their mortgage papers or did not understand their payment structure. I bought two houses and each time, I spent a couple of hours at the escrow office reading thru the fine print. When they try to charge you the junk fees or change the terms – just stop and refuse to sign. The broker has a big commission riding on the deal and will figure out a way to make it work. Come on people… this is the biggest purchase of your life. Some people will spend more time driving around town shopping for a purse!
Shree Khare
December 7, 2007 at 10:57 pm
That’s a good point.
A simple mistake buying a house can cost you more than a lifetime of coupon clipping frugality will save. A mistake buying a car can cost you years.
You have to take these purchases seriously. Who cares if it takes an extra hour to read the paperwork? So what if you have to be impolite? Even if the people you’re working with actually did call off the deal because you were so demanding, there will always be another deal.
Rolfe Schmidt
December 9, 2007 at 6:15 am
Mortgage Bailout? THERE IS NO MORTGAGE BAILOUT. This plan was signed on about 2-15-2009 and of this day not one person has received assistance. Or at least not one bank can/will provide any information (public under Law)
It is the most profitable government plan for banks ever made law. Here is how it works … you apply with your lender (in this case Wells Fargo) They give you a boiler room type sell on letting them work it out for you. They then re-qualify people who could not qualify in the first place for an interest deferred loan .. payable at time of sale or 5 years , whatever comes first. What do they get?? The first thing they get is the application fees (of course deferred,with interest for 5 years or sale) that cost thousands of dollars to the borrower, then instead of taking a loss by reducing the payment to 37% … they actually make a profit. The topping on the cake is they get to keep the $25 billion the government gave them to cover there loss. I can back up every allegation .. lets start by finding one person whose mortgage was reduced (not refinanced) under Obama’s plan,
Bill Maguire
April 11, 2009 at 10:51 am
Bill Maguire
April 11, 2009 at 10:59 am
We are working on a mortgage with RMC Vanguard presently. On the front end our experience mirrors yours–exceptionally quick to respond through lending tree. However, they came in another 1/4 point below the best offer we saw on lending tree; our contact was available on Saturday for handling faxed documentation. I will definitely stay wary as with any financial transaction, but so far things are looking pretty good.
Clark
August 16, 2009 at 2:15 am