Linda Powers’ Guide

How to fix the mortgage crisis

January 11th, 2009

Some things just seem to require a little common sense, and fixing the mortgage crisis is one of them. I heard a story on National Public Radio a couple of weeks ago. I haven’t heard anything about the concept since, and it really requires more discussion.

According to an article in Wikipedia on the subprime mortgage crisis, “As of August 2008, 9.2% of all mortgages outstanding were either delinquent or in foreclosure.” (The source is the Mortgage Bankers Association website, http://www.mbaa.org/NewsandMedia/PressCenter/64769.htm.) Think about this for a second. Almost 10% of all mortgages are in trouble.

• Would you buy a toy for your child if there was a 10% chance the toy contains lead?
• Would you buy an electrical appliance if there was a 10% chance that faulty wiring will cause a fire?
• Would you buy a car from a manufacturer whose air bags fail 10% of the time?

Yet this is precisely what we’re being asked to do when we buy today’s mortgage “products.” (And that is the term lenders use.)

Current mortgage regulations date from the days when borrowers and lenders negotiated loan terms face to face. Those days are long gone, and yet the laws assume borrowers and lenders are on an equal footing. Not long ago I sat next to clients who were purchasing a home. We were at the closing, and they were seeing their loan documents for the first time. (Lenders now fax the documents to the closing attorney or escrow at the last possible moment.) They had gotten their loan through one of those Internet companies that promise cheap rates, and the terms of the loan were not what they had been told. Not even close. They called the 800 number and argued with the clerk at the other end. In the end they were told that if they didn’t like the loan they could refinance at a future date or they could go somewhere else.

Here’s the problem –

1. You can’t get a new loan at the drop of a hat. It would probably take a minimum of 3-5 days under the best of circumstances. The property will need to be re-appraised, and the buyer would have to pay out more money.
2. The seller may not be willing or able to extend the contract, and there’s no provision in a typical real estate contract for this type of circumstance.
3. The buyer has made commitments. In this case, the buyers’ moving van was parked in the driveway of the new house. The buyer would have to pay storage for their household goods and incur the expense of staying somewhere else temporarily. Depending on how prudently they packed, they might have things they badly need for personal or business reasons buried in a box at the back of the truck.

Negotiating a mortgage loan is a far cry from negotiating face to face, and it can be a far cry from fair and ethical behavior from entities that hold all the power. If we’ve learned nothing from all the various corporate scandals that have come our way lately, it’s that we can’t count on large corporations to be fair and ethical with their customers.

The speaker on NPR had a brilliant solution, and I sure wish I’d gotten her name. Here’s how to fix the mortgage crisis once and for all: Mortgage lenders refer to the loans they make as “products,” and it’s true. They are. As such they should be overseen by the Consumer Product Safety Commission. Forget the Treasury Department and the SEC and all those agencies who haven’t lifted a finger to protect consumers from these mortgage products. Let’s put oversight where it belongs — the Consumer Product Safety Commission. And let’s give them the budget and the inspectors they need to get the job done.

Lastly, here’s my little self-promotion — if you want to take power back from lenders who clearly don’t care about you or your interests, please visit my website: United First Financial. I can help you get out from under. Instead of contributing to what is probably the largest building in your town, I can help you keep your hard-earned money for yourself and your family. Basically, you can stick it to them by cutting down on their income. Perfect.

Categories: Commentary, Economy, Government, Personal Finance, Taxes, Uncategorized | Tags: commission, consumer product, crisis, financial, first, fix, Mortgage, safety, united