What lessons have be learned?
A lot of the problems we are currently seeing with the mortgage industry today can be attributed to banks and mortgage brokers selling, higher risk, "higher profit" mortgages to people who would have been much better off with traditional lending products. Some estimates say that up to 55% of all subprime loans that were made during the boom were made to prime borrower with good credit and substantial down payments. Unfortunately, since the origination fees or Yield Spreads (how the brokers and lenders get paid) was higher on the subprime loans, these riskier subprime loans were often pushed onto unsuspecting consumers. It even been reported that in some cases banks contacted mortgage brokers who had already submitted client's applications and encouraged them to push the subprime loans to buyers.
So consumers who could have put 10 or 20% down and made the payments on a 30 year fixed loan were instead sold 0% down Adjustable Rate Mortgages. I've even heard of cases where people were told not to put 20% even though they had it available. Instead, they were told to hold onto the cash so they could do "something else" with it. Unfortunately, these buyers are now faced with mortgages that are adjusting above anything they can pay, or would have ever had to pay with a traditional mortgage product.
The problem for the consumer? FHA interest rates are higher, even with good credit, and both an upfront and a monthly Mortgage Insurance premium are required, even with 20% down.
So has anything really changed? Apparently not, some banks still appear to be selling consumer loans that help their short term profits while increasing the consumers payments and costs.
Luckily in this case the agent working with the buyer noticed what the bank was trying to do and explained the situation to the client. The client is now getting a traditional mortgage through a mortgage company we recommend in the office. However, had this not been recognized this buyer would have been boosting the bank profits and their expense for years to come.
While the Hoboken condo market hasn't seen too many short sales or foreclosures, and in general has fairly secure loans, it is still important to recognize the causes of the current mortgage debacle and do your research on the type of loan you are being offered.
Andres Garcia
Sales Associate, CDPE
RE/MAX Gold Coast Realty
56 Newark Street
Hoboken, NJ 07030
Direct: 201 795-5200 x340
Andres@MileSquareRealty.com
http://www.MileSquareRealty.com
So consumers who could have put 10 or 20% down and made the payments on a 30 year fixed loan were instead sold 0% down Adjustable Rate Mortgages. I've even heard of cases where people were told not to put 20% even though they had it available. Instead, they were told to hold onto the cash so they could do "something else" with it. Unfortunately, these buyers are now faced with mortgages that are adjusting above anything they can pay, or would have ever had to pay with a traditional mortgage product.
The problem for the consumer? FHA interest rates are higher, even with good credit, and both an upfront and a monthly Mortgage Insurance premium are required, even with 20% down.
So has anything really changed? Apparently not, some banks still appear to be selling consumer loans that help their short term profits while increasing the consumers payments and costs.
Luckily in this case the agent working with the buyer noticed what the bank was trying to do and explained the situation to the client. The client is now getting a traditional mortgage through a mortgage company we recommend in the office. However, had this not been recognized this buyer would have been boosting the bank profits and their expense for years to come.
While the Hoboken condo market hasn't seen too many short sales or foreclosures, and in general has fairly secure loans, it is still important to recognize the causes of the current mortgage debacle and do your research on the type of loan you are being offered.
Andres Garcia
Sales Associate, CDPE
RE/MAX Gold Coast Realty
56 Newark Street
Hoboken, NJ 07030
Direct: 201 795-5200 x340
Andres@MileSquareRealty.com
http://www.MileSquareRealty.com
Labels: Hoboken Real Estate, mortgage financing, Subprime mortgage
