My New Blog

Well Cassandra,

You raise a good point, in fact one that had not even crossed my mind. If anyone else did not read her question, it is basically asking what do people whom have been foreclosed on do? Where do they live if they have a larger family because apartments are not going to work for them.

I have thought about this since last night when it was posted, and don't have a true answer, because she is right, where are they going to turn? When you look at it, it is a spiral, because once you have a foreclosure on your record, you are going to have a hard time renting anywhere, because it drags your credit down so much.

The other point of where is someone with a larger family going to go, is a great one as well, you can't go in some little two bedroom apt. it will be very uncomfortable, and that's if the landlord allows it.

The real problem here, you have to  be lucky enough to find someone willing to take a chance on you, and those type of chances are not real good, given the way people look at credit, and yes, being foreclosed on is such a huge hit, it will be hard to get someone to rent from. Most foreclosures right now, are a result of the ARM Loan's that were taken out a few years ago, and the rates get jacked up on them to where no one can afford it.

The lenders got people in with these low teaser rates, and people could qualify to pay that mortgage based on that rate, pretty plain and simple. Then the rate resets, and goes up two points, now you have to pay an extra $200 a month on a 100K loan, heck $400 a month on a 200K loan, then the next year it resets and again, you are paying another $200-$400 a month, so now you are paying an extra $400-$800 a month, that doesn't account for the taxes and insurance in your escrow that have gone up as well. So let's say you are paying an extra $900 a month for your mortgage, it is almost impossible that you are making that much more at your job, if within two years you are netting and extra 12K or so a year, then let me know where you work, so I can get a job there as well.

The average job gives people a raise of 3% a year, so your base salary would have to be over the 300K mark to accomplish this task, and if it is, you can probably afford the increase, I am guessing. For normal human beings that work hard for an average salary of 25-30K a year, they will go up $900-$1200 a year, and the mortgage company takes all that in one month from them, when they play the reset game.

The only good that ARM's do, are for people that move a lot for the jobs, or whatever reason, and they are only going to be in their house a year or two, so the adjustment probably won't kill them too bad.

Now, on that subject, I will say that my first mortgage was an ARM....I was 21 and right out of the Army,had no clue what I was signing or doing, I looked at the payment, and said, yeah I can make that. I was truly blessed, because I bought in 1993. the rates never adjusted that much. I locked in my rate in 1999, and was just fine with it, as I had started out with my "teaser" rate of 4.25% and locked in at 5.5%. So it wasn't bad at all for me.

Todays borrower was not that lucky as the prime rate was jacked up due to the failing economy, and has forced people out of their homes left and right, for which I am in shock at the government not doing more to stem this epidemic. I have always preached 2 my clients (even though I am not the mortgage broker) to go with the 30-year fixed, or 15-year if they can, most can't but I have a few that have been able to. I had one of my old clients get foreclosed on this year, and I actually could not sleep for real for more than a week. I had the guilt of, did I put her in more than she could afford? But when I looked back on it, she had a fixed rate, and the amount of house that was bought was over fifty thousand less than what she qualified for. I always tell people to be comfortable with the payment, not think, well I qualify for 200K I want a house close to that amount. I stress keeping it within a comfortable budget. My guess is that something else happened to her, and for that I am sorry, I had run into her just about two weeks before I saw it became a foreclosure at Jewel, and she said everything was going great, I wish I would have known earlier, and been able to sell her place as she had a ton of equity in the home.

Anyway, back to the original thought of the post, there is no clear cut way for people to get back to where they should be after a foreclosure. I pray and hope for anyone that it has affected that someone will rent a house to them, but again that is the catch-22, if they run a credit check, they will think, "well if they could not afford their mortgage....." and so again a cycle is started, even though the person really did nothing wrong, they got caught up in the wrong economy and no government that would help.