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Remembrance of three mortgage deals. April 3, 2008

Posted by shaferfinancial in Uncategorized.
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I take this time, as legislatures attempt to grapple with the credit issues of the day to remember three mortgage deals that presented to me.  It is my way of pointing out the folly of trying to find victims in this situation.

She came to me through a mom’s group that my wife belongs to.  She was living in a relatives home for almost a year.  Her husband worked, while she was a stay home mom to two children.  She wanted to buy a home because her relative “was being unreasonable” with them.  Quickly, we found out that they owed money to several entities leaving them with a credit score in the mid 500’s.  They had only a few thousand dollars saved over the year they had been living rent free.  The husband made little money.  And she didn’t want to work, even part-time, because she wanted to take care of the children.  I proposed a plan that had them paying off their debts, saving money for a down payment and having her work part-time. I even gave her two names of folks willing to hire part-time moms.  I told her the plan would take about a year to pull off.  “That is unacceptable,” she tells me.  “What about those stated loans?”  I tell her I will not lie for her, and beside, they couldn’t save money now, so how were they going to find the money to pay a mortgage?  She then bad mouths me to several people who tell my wife about it.  She finds someone else to do the deal for her, and the house was in foreclosure several months after.

A gentleman comes to me who had declared bankruptcy a few months before.  He had gotten himself into a mortgage with a “equity based loan,” which had a variable interest rate going up to 13%.  He made good money, just lost control of spending that caused the bankruptcy.  He was a commission salesperson.  I found him a sub-prime loan, insisted on him taking the fixed rate, and financed it with home equity.  For income documentation they took 12 months worth of checking account inputs and outputs.  Because his scores had come up to the mid 600’s I was able to get him an interest rate of 7%.  He has not been a day late in the several years since.

He ran a successful business.  However, he expensed out quite a bit so couldn’t demonstrate a realistic income.  He had plenty of cash flow.  Credit scores in the high 700’s.  We got him a stated income loan with a interest rate of 6.675%.  He also owns three investment homes.  He has never missed a payment and his credit scores have gone up since we did the loan.

As I watch the government shenanigans, and finger pointing, I wonder who are the real victims here.  I wonder about the couple of handful of folks who approached me for a sub-prime loan, but went elsewhere when I insisted on them having a fixed rate.  I wonder about those folks who bought option arms from someone else, after I suggested a different loan program was best for them.  I wonder about those folks who scoffed at my suggestion to pull out equity then, who are losing their homes now.  I wonder about those folks who I suggested use a professional real estate person to sell their home because the market was going bad, but did the For Sale By Owner thing and never sold their homes.

Who are the victims?  I wonder….. 

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