It seems that more and more Lenders are sending out some misleading information to get their phones to ring. Being in the industry, although I do not understand all of the Mortgage Lingo, I do understand that all loans are not for everyone. Some of what they send out is almost Predatory, and most often misleading.
I received a letter from a National Lender, that quite frankly I don't care for, trying to sell me a 40-Year Home Loan. They claim:
- It will Lower my Monthly Payment
- Consolidate or pay down higher interest debt
- Get cash to do things I want
- Streamline my finances
Not only that, the Home Loan Interest Paid is tax-deductible which could save me money! Blah, Blah, Blah. It keeps going and sounds great! Why would I NOT do this?
Folks, my payment is $650 a month and 1/2 of my payment is Escrow. Do you think that they could really reduce my payments? NO! I don't think so.
I didn't write this to gripe about me, I wrote this because how many people that have NO idea about mortgages would call immediately to be SOLD a 40 year Mortgage. I hear from clients quite a bit lately "I think I might get one of those 40-50 year Mortgages" It seems they are designed for special circumstances though. Much of the focus on the Mortgage Industry is on the initial home loans that can lead to Foreclosure. What about these letters?
If you turn over the letter it says in little bitty letters that it may actually INCREASE your payments. How many of you think this should be on the FRONT of the letter? I know why it isn't, but that doesn't mean it's right.
I consider these letters to be somewhat Predatory, what do all of you think?
Hi Abe, I understand that part of it but if someone plans on rolling in the cost to do this, take out money as they say can "give you the extra cash you need" it will in turn raise the payment right? It just sort of seems as though it would not benefit the average price range...atleast in Houston.
I think they should put IN the letter who it would benefit...again, I'm not on the Mortgage side so I just wanted input. Thanks.
Stephanie --
Those letters are feeding on our culture of more, more more instead of focusing on sustainability, and they bug me too. Every week I have clients who ask me -- from a place of fear (that they may be making a mistake and paying too much) -- about some too good to be true letter they've gotten in the mail.
In the last year with interest rates as low as they had been, we had begun to see a cultural shift towards long-term financial responsibility: It just wasn't worth the risk to try off-the-wall mortgage products when 30 year fixed rate mortgages were priced at or below 6%. There were the vulnerable ones, though -- people whose lives or bad financial decisions had them clinging to the hope that there was some kind of gimmick that could erase the tough times they were in.
And now that rates are rising and foreclosures are expected to continue setting records, we'll have more and more of those vulnerable people.
In the end, those letters are sent out because they get people to pick up the phone and call the sender. Which would be more likely to make you respond -- a letter promising lower payments, or a letter promising honesty?
We want honesty; we'll act on the hope of lower payments.
Hi Jordan, I agree. My thinking is couldn't they do target marketing with these. Meaning, target the neighborhoods that would be more likely to benefit? Or simply put in the letter who would most likely benefit. I'm sure there are different programs that would benefit different price points.
Even an interest only loan in many price ranges is not beneficial. Am I making sense? It would sort of be like me marketing 3/4 million dollar homes for move up buyers to the wrong market.
A 40yr mortgage with a 10yr interest only period works in special circumstances. Like one spouse is going to schoool or something.
But I have seen too many people use this loan to get a bigger house. Geez, I have people who make less than me.... less money in the bank than me.... and they live in TWICE the house I do.
Notice I said 'house' and not 'home'?
Hi Tom,
That is where I think the predatory comes in. I agree it is great in certain instances, but probably not for the majority. I just don't know what to think about it all. And then we watch the news wondering why people in the United States are in so much debt. Thanks for stopping by Tom.
Me too. It must really tick off the honest mortgage professionals too. Like us, they all suffer from the effects that the few unscrupulous ones cause. :(
Yes, it can tick off the "honest" mortgage professionals! Especially when someone has been hurt by what I refer to as a "hit and run" transaction and they have been sold a product that was not right for them and that ultimately put them in a worse sitution. In the past when homes were appreciating at a decent rate there was always equity to work with to undo a bad situation. We are now in a non (or very little) appreciating environment and lenders are not as liberal with guidelines. It puts one in a tough situation.
I agree that the 40 yr is not for everyone -- very few circumstances. The 40 yr option usually has an interest bump and 30 yr pricing comes in close to the same payment. I agree with Tom that there are special circumstances where this will fit. Predatory? by definition, probably not. Is the industry sending the wrong message with this type of letter? Probably. No wonder we have people still calling asking, "what's your rate"? There are so many other factors involved and we all have access to the same rates -- quality work and honesty should be the first question.