Mortgage 101-Denver Fails the Test

Colorado is at the top of the foreclosure list-According to the Denver Post and a computer-assisted model, no money down loans are the leading cause of the state’s foreclosure epidemic!

In the article they cite an example of a young couple with poor credit who got into their home with no money down and as part of their mortgage they signed a loan that required them to pay off a $44,000 second mortgage in 14 months-Time’s up, they are losing their home! This article really makes me sick to read how the poor and very unsophisticated got put into these inappropriate mortgages. While some of these exotic mortgages are great for sophisticated investors with deep pockets-they are creating havoc here in Colorado and across the nation.

Here are some suggestions offered by the U.S. Department of Housing and Urban Development for those in trouble with their mortgage:

1. Act Quickly-Lenders usually are willing to help you devise a plan to keep your home. They may agree to a reduced or delayed payment schedule. Call as soon as you can. The further behind you are, the less your lender can help.

2. Get help-Housing counseling agencies approved the Department of Housing and Urban Development can help you assess your financial situation and help you negotiate with your lender. Call HUD at 800-569-4287.

3. Consider Your Options-If you simply can’t afford to keep your home, your lender may give you the time to sell it, even if the sales price is below what you owe.

4. Beware of Scams-homeowners in foreclosure are often targets of fraud. “Equity skimming” is when a buyer offers to repay the mortgage sell sell the property if you sign over the deed and move out. Phoney counseling agencies also may offer help for a fee you don’t need to pay.

Help on the web-For more information about foreclosure, go to HUD Foreclosure Help.

Steve Mertz
Mortgage 101

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One Response to “Mortgage 101-Denver Fails the Test”

  1. Phil says:

    Often, individuals and couples with poor credit have very few options when it comes to financing a home purchase. With good credit and 20% down, you can qualify for great rates and a wide spread of loan products – but if your credit score is 620 and you can only bring 2% to closing, your options are much more limited. Often, the only loan products available feature adjustable rates, often with 2-3 year prepayment penalties….and usually come at high interest rates (3-5% higher than market average). However, if the new homeowner makes on-time payments until the prepayment penalty expires, the resultant increase in their credit score will make it possible to refinance into a ‘safer’ loan product that they simply couldn’t qualify for when they bought the home, and at a better interest rate. For a responsible young individual without a lot of credit history or assets, a zero-down loan can be a launching pad into the higher net worth and financial stability that often accompanies home ownership.

    Zero or low down payment mortgages are not to blame for the spate of foreclosures in Colorado, or anywhere else. There may be a correlation – but it is the borrowers, not the mortgages, who are at fault. Simply put, someone who cannot even save 5% of the purchase price towards buying a home is more likely to live paycheck-to-paycheck, and miss payments when finances get tight. Borrowers who can save 20% for a new home obviously have better savings habits (or more financial resources) – and likely have emergency savings that let them weather downturns in cash flow. (And by the way, if you can put 5% down on a home purchase, it makes your application much more attractive to lenders – in turn you end up with better rates and lower payments.)

    As a mortgage broker, when I sit down with prospective borrowers, I explain to them that what I can ‘qualify’ them for is much more than most people are willing or able to pay. I give borrowers as many options as their situation allows, and once we’ve arrived at a monthly payment amount, ask “is this a number that you are comfortable paying each and every month?” It is the responsibility of the borrower to decide if they can handle those payments.

    Ultimately, people need to stop buying houses that they cannot afford.

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