Not too long ago our mortgage world as we knew it also changed. Everyone thought that anyone could get a loan.  No reason to meet with a loan officer.  “I can get a loan.  No problem,” was the attitude. And for the most part people were right.  Then the epidemic hit and the world changed.

Many lending institutions have gone out of business and many are barely hanging on.  Many borrowers have lost their homes.  Some are hanging on. Currently, the real estate market is tough, and many programs that once existed have either been eliminated or have been revised considerably. Real estate agents do not know who to trust. Are the pre-approval letters worth the paper that they are written on?  Developers are eager, if not, in some cases, desperate to move units.  Many loan officers have had to look for jobs, and some just do not have the kinds of programs that they need for many of the same kinds of client loans that they had in the past.

And so, to end my little series, here are my thoughts:

1. Be very, very careful and deliberate in deciding whom you will work with: realtor, loan officer, attorney, etc.
2. Do some research and ask a lot of questions.
3. Use common sense about the programs that are offered.
4. Make sure you understand everything.
5. Before signing any documents, have everything in writing.

We are all responsible.  This epidemic may get worse.  But it will get better.  Still, you, a homebuyer who controls your own destiny, can still get caught up in a bad situation.

Control your destiny. Don’t be controlled by others.

I recently watched the film, “They Shoot Horses, Don’t They?” which is about a lot more than a dance marathon.  I highly recommend it.  The story does center around a dance marathon that takes place in the 1930’s. 

Now that we have reviewed the beginnings of this foreclosure epidemic and looked at the various reasons for this disaster, we should look at the remaining dancers. Now, today, we clearly see that many lenders had offered programs that never should have been available.

Looking back, offering 100% loan-to-value programs, with (say) a 580 credit score, and not verifying any income, I would say that there was going to be a disaster for buyers.  Even less dramatic programs–high debt-to-income programs, no employment required, etc.–gave people their American dream that, for too many, turned into a nightmare. 

Today, as a loan officer who prides myself in studying and mastering loan program availability, I find that it is nearly impossible to remember the daily changes.  For me, this ironically means that the programs were so liberal and loose regarding the guidelines that almost (literally!) anyone could get a loan. 

Again:  almost anyone could get a loan. There were programs for anyone.

So…there were too many programs that offered the world to everyone. The risk, for lenders, was high, but everything seemed to be wonderful.  Now…not so wonderful.  Banks are going out of business, many people who work for these banks are losing their jobs, and, still, many, many people are losing their homes.

We all seem to have been in this marathon dance, and unfortunately too few people can enjoy the dance.

The room, as I call it, is the place where you, the borrower of a loan, and the loan officer, the person who is assisting you in getting the loan, meet. By place I should almost say space, but really, it is how you meet the loan officer. It could be via email, via phone, or in person. It is this place/space where the loan process begins, and this is the area that no one–none of the so-called experts–really can tell how things are going. Except for the loan officer and the borrower(s).

In continuing my series on our current foreclosure epidemic that started with my Introduction, I think this is probably the most important step in staying out of foreclosure.

Tony Gallegos has a recent post (quoted from another source) that explains how Abe Lincoln would know his opponent’s arguments and case so well that he himself would, in effect, take all the wind out of the opponent’s sails and win. Because he knew their case better than they knew their case. In an odd way, this is relevant to my point. As borrower’s ‘meeting’ with a loan officer, in many cases a stranger, you should think about the loan officer’s agenda. Yes, the loan officer has to make a living, yet the best loan officers never convey the sense that they are meeting you only to make a profit. Hopefully, though, when you walk into that strange space (internet, phone, or actual room), you will get a very strong sense that the loan officer wants to help you, make you feel comfortable, and assist you in making the best decisions. Though you are nervous and excited and probably feeling eight to ten other emotions, I think it is important to pay attention to the loan officer.  What is he saying? How is she saying it? Are there options? Why? Why not?

So here is my main point–and it is going to sound really crazy: don’t just think of yourself. By this I mean pay attention.

The road to foreclosure starts right now. We, the people who are trying to understand and explain and help others not go down this path, forget that we really don’t know what happens in these rooms. Does the loan officer explain an ARM and how it works and how it could hurt you? Does the loan officer give options? Does the loan officer review the Good Faith Estimate, and, if the borrower signs it, does the loan officer sign as well? Does the loan officer review the credit report, the essential documents for underwriting, and/or the different types of documentation (verify income and assets and employment…or not)?

Most important, when you walk in the room, do you feel like you are being treated as a human being or manipulated like a robot?  And this is what no expert can measure in explaining how the foreclosure mess started.

I am not Abe Lincoln (for sure), but I do like to understand my clients, and most good, reputable loan officers will do the same. Prepare yourself before you step into the room.

This post follows the Introduction and Part 1 about our foreclosure problems.

It’s no secret that, today, more than ever, Americans want things.  Big things. Lots and lots of things.  Expensive things.  Nothing wrong with that. The one ‘thing’ that we all want, that is not always stated out loud yet is clearly the loudest voice inside us, is our desire to be happy.  And this is where the dream can become nightmare.

We are told that the American dream is to own a home. Home:  a word that has many connotations. Here’s the Wikipedia definition:  A home is a place where a person or family lives, perhaps spends much of their time, or where a person is comfortable being. The cloud of foreclosure oven moves in when people follow their dreams, often unrealistic, instead of pursuing the process with a practical, planned, and informed approach.

Where a person is comfortable being. I find this phrase so appropriate.  Do we buy a home because that is what we are supposed to do (like everyone else)? And buy a home a touch bigger than our best friend, just for bragging rights? Or do we in fact buy the appropriate home where we can live comfortably and without stress to make that monthly payment? 

This is a great question to ask yourself when starting to think about buying a home: Am I buying a home because I want a place for me (and my family) to be happy and live a comfortable life, or am I buying a home because everyone tells me I can and everyone on television and in the movies has these fabulous, huge houses and I want to be like them and live a life like them (even though I may not be able to afford it)?

My wife often humorously complains that she can never remember her dreams (after waking up in the morning).  “I know I had this dream, and I remember laughing in the dream,” she might say, “but I can’t remember anything else.” Unfortunately, as we have been seeing, many people followed their dream and will only remember the loss and pain that comes with a foreclosed property.  As I always suggest: budget and meet with a caring loan officer.  A great start to fulfilling your homebuying dream that will end up being a comfortable and happy part of your life.

The Sopranos final episode had no ‘da dum’.  At least not the way most people wanted. No clean tied-up ends, no resolutions, but a lot of wondering.  Many people want that feeling of coming home, having resolution, knowing how things are going to turn out and be ok.

For homebuyers it’s the same way. And it’s real life. (Of course that is part of the point with The Sopranos’ ending:  just like real life.) And I think getting a mortgage can be scarier than anything from The Sopranos.  We do things thinking and hoping that everything will be just fine. And when we think and hope, as we are finding out more and more, we head down the foreclosure road.

Here are a few critical stages where hoping that things will turn out ok and financing can go bad:

1. Budgeting:  not writing a realistic budget and thinking that something close (a number close to the maximum that you want to spend) will do just fine.  Decide on a budget, the most you want to spend on your total mortgage payment, and stay with it.

2. Application:  the loan officer verbally gives you numbers and says, “Don’t worry about it.” Get everything in writing. Make sure you understand everything. 

3. Programs:  programs that seem risky, for you, probably are risky.  If you don’t feel comfortable with programs that are being presented, do not do them.  Be assured with your decisions.

I actually loved the ending of The Sopranos.  Of course, that’s TV (sorry, HBO…..).

Epidemic: widely prevalent 

So this is what we are dealing with. Something that is happening everywhere.

If you have read the introduction to my series on the foreclosure epidemic that was described in the Chicago Tribune, you know that Becky Yerak described the spread of foreclosures as an epidemic. 

So, yes, the basic definition is widespread and prevalent, but of course it also has the connotations of the spread of infection and disease.

I think both meanings are appropriate.

For those who have gone through the pain of a foreclosed home, the emotional disease metaphor rings true. Not only does the problem spread but also the affects hurt everyone equally.  Pain, suffering, tragedy.

My next post will suggest why this end tragedy starts with the common dream that we (Americans) follow, many times, without thought and reason.

Last week Becky Yerak, writing a front page article about the foreclosure problems in Chicago, titled her article with a chilling description:  

HOME LOSS EPIDEMIC SPREADING

Epidemic.

It’s spreading. It’s happening to more homeowners. More heartache. More pain. Spreading. Getting worse.

How could this happen?  A lot of finger pointing. Yet few people assuming responsibility. Many confusing and detailed reasons.

But an epidemic?  With all the questions, and all the excuses, and all the fear and turmoil, no one seems to have answers. 

The Tribune article has me thinking, and so I am going to write a series of posts about this epidemic that, I hope, will help illuminate some of the more unexplained and unexamined reasons. The series will use worst-case scenarios in which a perfect storm-like series of events has produced our situation. Most homeowners do not experience this situation, and this is something that I want to point out up front.

This is obviously an important topic. Please share your thoughts and responses.