We Are In A Crazy Time

As many of you have either heard or read, the mortgage industry is experiencing a difficult time due to high foreclosure rates. Even in Wisconsin, where we have historically had lower nationwide foreclosure rates, we are experiencing high foreclosures. There are questions as to why this is. Is it the lenders fault? The mortgage brokers? The customers? There is much debate on who is to blame, but I have my own ideas.

First and foremost, we need to look at the customer. There isn't anyone that has held a gun to someone's head and said you must purchase this home. In ALL cases, there are disclosures that are signed and at the closing table, it is the right of the buyer to walk away if the terms are different than when quoted or if they feel that they can't live up to the terms of what they are signing. I definitely don't want to put all the blame on the consumer, but they are responsible for their actions (as are all of us associated within this business)

Secondly, I think we need to look at the mortgage programs that have been made available. There are so many loan programs available that allowed almost anyone to purchase a home. I think what happened is that there was such a craze to purchase homes and lenders were so busy taking care of home purchases and also refinances because interest rates were so low, that they never saw coming what is happening now. Everyone was living in the fantasy world that interest rates were going to continue to go down, home prices were going to continue to increase in value, and that people were going to be able to afford the payments they were getting. What happened is that people that shouldn't have been buying homes, bought homes. People were getting themselves into adjustable rate mortgages and never looking at what could happen three or five years later when their rates adjusted higher. People were able to buy homes with no money down. All these things added up to what we are seeing today. I don't want to place blame on all the lenders, either.

Next comes the mortgage brokers themselves. Middlestead Mortgage included. We experienced a time where we all were making very good money. We were refinancing people left and right to get them lower rates. We were taking equity out of there homes to consolidate debts. We were getting mortgages for people that were first time home buyers with little or no money down and not taking the time to educate the buyer on what home ownership was all about. Many people didn't understand what to expect six months later. Home maintenance, possible repairs, property taxes, possible increase in interest rates if they had adjustable rate mortgages. Many of these things could have been gone over better and maybe people would have made different choices. Then there are the mortgage brokers that did the wrong thing to be profitable. Putting people into crazy loans that made the broker a lot of money, but wasn't in the best interest of the customer. Doing stated income loans when they knew the customer couldn't afford to make the payment. These types of things mortgage brokers should have done a better job with.

What is next? I think the industry is going to have some overhaul. Remember that people will always buy houses, people will always look to access the equity in their home to consolidate debt, and people will always need mortgage professionals to assist them. What is the most important thing I believe is to do business with someone you trust and have confidence in. Someone with a proven track record. Ask questions. Look at the big picture and the short and long term consequences of what decisions you are about to make. Know exactly what you are getting in to and take the time to figure out if the direction you are going is in the best interest of you and your family. As a consumer, realize the responsibility you have to the entire process. You ultimately make the final decision. If you don't like the terms, the person you are dealing with, or feel uncomfortable, then don't do it.

As far as the lenders are concerned. We will see a tightening of rules and regulations. No money down loans will become harder and harder to come by. I think that is a good thing. Statistics show that people that put their hard earned money as down payment are more committed to making things work. If you don't put anything into the deal and things don't work out, what have you lost financially? Nothing. Getting approved for a loan will be tougher.

Lastly, as mortgage brokers we need to due the responsible thing. We need to make our clients aware of what is good and bad. We shouldn't be afraid to say no. I can tell you at Middlestead Mortgage we are committed to do the right thing. If that means saying no and having a client mad at us, then I guess I am willing to do that. Even if they can go down the street to get a loan, I don't want to feel guilty about doing something I know in my heart is wrong. However, that doesn't mean I am not going to work my tail off to help someone. If things makes sense to me, then I believe I can help it make sense to my client.

Overall, this isn't a time of panic. This is a typical adjustment to the industry in general. That doesn't help the individual that is going through this now, but in the end it will make things better for future people trying to buy houses and refinance their existing mortgage. We all need to take a look in the mirror and accept some responsibility for what has happened and make the corrections needed to make sure we do the right things in the future. All of us.