Lenders Gone Wild

No one cares more about your financial well-being than you.  It is imperative to become financially educated or you will pay a steep price.

Source: Market Watch
Can U.S. curb the ‘exotic mortgages’ frenzy that puts homeowners at risk?

…..In some instances, according to regulators, the lenders knew that the only way the loan could be repaid was to either refinance or sell the home. Such “collateral-dependent” loans fit the classic definition of unfair and deceptive lending practices under federal consumer protection laws…..

Studies show that a large number of borrowers with simple ARMs don’t understand the terms and underestimate the amount their mortgage payment could rise. Nontraditional ARMs are even more complex. 

Most of the exotic loans have low introductory interest rates that ultimately adjust to market rates, usually after two years. Some loans require that only the interest be paid, putting off the day when the borrower must start to pay down the principal. Some of the loans allow borrowers to make a monthly payment that doesn’t even cover the interest, resulting in a negative amortization when the unpaid interest charges are added to the principal. And most of such loans sold in the subprime market have large prepayment penalties that make it expensive to refinance.

So home buyers rely on professionals to advise them, to tell them what products are best for their circumstances, what they can afford. “That creates an agency problem,” said economist Dean Baker. The person you’ve hired to take care of your interests, Baker says, might have interests of his own that conflict with yours.

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