Kill Mortgage Brokers (Vol 1.)
- Jan 09, 2007
- admin
- Investing
SOMETHING HAS BEEN BOTHERING THE LIVING HECK OUT OF ME LATELY.
No, it’s not the fact that CNN accidentally put a picture of Osama on the screen
when discussing Barack Obama: that was just the kind of pie-in-the-face mistake that
liberal media is great at making.
Nor is it the fact that the ninnies up in Washington think a troop surge of 20,000
is enough to get the job done in Iraq.
Readers of these pages know that I’ve been against the war from the minute they
started selling it in 2002.
But now that we’re there it’s about time we lock this place down Post-WWII style and
show these C–kSuckers what it really means to have the most powerful military on
the planet.
Nope, as disgusted as I am in the state of affairs we currently find ourselves in
as a nation, nothing has disgusted me more then the following statistic:
In 2007, $1.4 Trillion in mortgages are going to reset, giving many homeowners
sharply higher monthly payments.
What does that mean to the average American?
It means that many young people are going to wind up FINANCIALLY CRIPPLED FOR THE
REST OF THEIR LIVES.
Let me explain:
For the past 5 years mortgage companies have mad a fortune selling Adjustable Rate Mortgages (ARM’S) to first time buyers.
Many of these people were young and inexperienced 20-something kids with dreams
of being a first time homeowner.
But when a young person finances a house using an ARM that person is esentially
making a bet against the mortgage company that interest rates are going to stay low.
Now everyone knows that the odds are with the casino in any bet they arrange – that’s
why most people who enjoy gambling only risk what they can afford.
But in this particular bet the mortgage companies had the odds stacked heavily
in their favor:
THE ONLY TIME IN 20TH CENTURY AMERICAN HISTORY THAT INTEREST RATES HAVE BEEN THIS LOW WAS DURING THE GREAT DEPRESSION!
Now please understand that I do not extend my sympathies to investors, speculators or
quick flippers who tried to make a fast buck in real estate.
I’m talking about young couples in their 20’s – specifically inexperienced people
who probably got married and we’re going to try and make it on a “wing and a prayer.”
As you remember, $1.4 Trillion dollars of mortgages are going to “reset” this year.
That means that many of these young people are going to get bills that are a
heck of a lot higher then the bills they got the month before.
And many of them will be unable to pay them which will lead to a lot
of forecloses.
But what truly makes this situation so darn tragic – and what makes this time
so different – is that the mortgage brokers had LESS RISK then ever before.
That’s because the bankruptcy laws changed…now 20-something year olds will have
to live down one bad decision for the rest of their lives.
Let me explain:
If a young couple falls in love, gets married and spends $250,000 for their first house
at the TOP of the market things could get painful.
For starters, the value of the house has likely declined by 20% already.
What’s worse however is that if they financed the purchase with an ARM
(a bet that interest rates are staying low) many of them will wake up one month this
year and see that in some cases their payments have DOUBLED!
Double the mortgage payments and you can only sell the house for $200,000: that means
you’re $50,000 in the hole.
If they can’t pay this new, larger mortgage payment then the effects can be
devastating:
Thanks to the changes in the bankruptcy laws, these young kids could be in a
financial hole for the rest of their lives.
That’s a tough burden for a 20-something year old to have to deal with as they pull
into their 30’s.
It not only affects their only lives but it even reduces the chances that the person
will be able to get their children educated at the best school possible.
In short, the entire lineage of that person will be affected for generations to come.
And for what?
Just because the mortgage and credit card companies sold these people on a dream?
For those of you who think i’m being too soft consider your own 20’s: how many mistakes
did you make that you are happy haven’t followed you for the rest of your life?
(Remember the first person you thought you were in love with?)
So here’s what I’m saying:
I’m a buyer of any asset at the right price. I’ve been trained from a young age to
look a pain in any market as a good thing for a buyer.
When real estate really begins to take it on the chin I will be a happy buyer.
I will take advantage of a person who was less educated then me and had to foreclose
due to circumstance.
And while I will continue to appreciate – and profit from – a system that rewards and
respects accountability….
There will be a small part of me that wonders who is on the other side of the
transaction….
If it’s a lovelost young couople who just fell in and out of love and had a kid but
had to sell the house, I’ll feel for them….
The 50k in debt they’ll still owe the banks will be a VERY hard hurdle to overcome.
And yes, I will still buy the house because the system – while imperfect – works and
it’s STILL the best system I’ve ever studied.
But this time I’ll do something different after I line my pockets with the cash of
my inexperienced young 20-something victims.
I’ll take a walk over to the office of the mortgage broker who sold this house to the
couple and i’ll punch him so hard in his face he’ll swallow his teath.
Not giving people enough information to make a decision with such impact is totally
unacceptable…
Best Regards,
Dylan Jovine
Chief Investment Officer
INVESTMENT TAKE-AWAY FROM THIS ARTICLE: Whether you are that young person who fell in love, got married and bought that first house to early or not I have one piece
of advice for you: RE-FINANCE NOW!
After five years of booming activity, the housing market fell into a slump last year.
It is likely to stay weak into next year as well, analysts say. But other factors,
such as still-decent mortgage rates and a good job market should help cushion the
situation.
Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing, rose to
around 5.89 percent recently, from 5.86 percent.
For five-year adjustable mortgages, rates also went up, rising to 5.96 percent, compared
with 5.92 percent recently.
However, rates on one-year adjustable-rate mortgages edged down to 5.44 percent,
from 5.45 percent recently.
The mortgage rates do not include add-on fees known as points. Thirty-year and
15-year mortgages each carried a nationwide average fee of 0.4 point. Five-year a
djustables had an average fee of 0.5 point, while one-year ARMs carried a fee of
0.6 point.
A year ago, rates on fifteen-year mortgages stood at 5.79 percent, five-year ARMs
averaged 5.82 percent and one-year ARMs were at 5.22 percent.
Mortgage giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages
averaged 6.13 percent this week. That was up slightly from 6.12 percent last week
but was down from 6.26 percent a year ago.