It was just barely two weeks ago that I wrote “Mortgage Rate-Yesterday's Answers Won't Solve Today's Problems". The article discussed the schemes of the boom mortgage market that were fine-"until the cows came home". It appears as though the cows have come home.
The article opined that the non traditional loans of interest only, ARM's, cash outs and 50 year loans among others that were so popular then, were okay in a rising real estate market. Little did I realize that a scant two weeks later I would hear on NBC about home foreclosures being the highest ever.
The so called exotic loans or non traditional loans are coming in at a staggering 39% this year compared to a ten year average of 2%. It is predicted that there will be 1.3 million foreclosures this year, up 53% from last year.
The NBC story seemed to place the blame on the “exotics" as the story called them-the non-traditional loans cited in my article. But who really gets the blame the lender or the borrower?
There is probably plenty of blame to go around. Of course most folks will want to put the blame on the lender for being too greedy and I am sure there is certainly is some of that. But what about the greedy borrowers who had eyes bigger than their heads. What about them?
The truth is the borrowers have to take the bow on this one (unless that greedy lender had a gun to his head). Borrowers who for their first home in an up surging market had that “cannot fail", “don't hold me back", “keep up with the Jones's" attitude.
When a county like Boulder County in Colorado (very high income and education levels) leads the nation in foreclosures then maybe there is something wrong. Relaxed lending requirements are being taken advantage of by both borrower and lender so maybe there is another culprit. Could it be that they are the culprit, these relaxed lending requirements?
In the good old days when you had to qualify for a loan based on income, the borrower got a fixed percentage of the value of the home. Pure and simple. But with all the competition and over 50 loan programs from the sublime to the ridiculous, borrowers and lenders alike are almost encouraged to stretch themselves. The result-when the cows come home it is time to pay the piper. The math doesn't look so good and foreclosure is the result.
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