Read an Excerpt
EDUCATED BORROWERS ARE OUR
BEST PROTECTION AGAINST BAD
Say ‘‘the American Dream’’ and you are likely to envision owning a home as part of that dream. Yet for millions of families who have faced foreclosure home ownership has become a nightmare. In
2008, a presidential election year, the United States Congress passed historic legislation to stimulate and stabilize financial markets that were reeling after the collapse of the subprime mortgage market. In
July it approved bills that created a $300 billion fund to rescue the
U.S. housing market, bail out home owners at risk of foreclosure a shore up institutions that hold almost half the country’s $12 trillion mortgage debt, and impose stricter regulations on the industry. Only three months later, in October, Congress took control of those institutions a and added over $700 billion in funds to absorb the risk of foreclosures, defaults, and bank failures, hoping to stabilize the markets and restore the flow of credit. The message to borrowers: It’s dangerous out there!
I have always believed that when people are informed and empower themselves to be responsible for the decisions they make, they rise to the task of knowing what is best for them, and in most cases a they act on it. I’ve written Navigating the Mortgage Minefield to provide the information and straight talk that allows people to empower themselves in this way.
Whether you are thinking of buying a home or refinancing your current home, or if you are searching for a way to avoid foreclosure a you are wise to approach a mortgage mindful of dangers you can avoid if you are informed, alert, and responsible. When you know where you are going, have a road map to guide you, and are in the driver’s seat, you can navigate the mortgage minefield and arrive safely at your financial destination.
If you are obtaining a mortgage for the first time, this book takes the mystery out of the mortgage process and provides tools for you to evaluate whether you are truly ‘‘ready, willing, and able’’ to assume the financial responsibilities of home ownership, of which a mortgage is only one part. If you are a veteran of the mortgage process a then the book will help you to brush up on the fine points of the process and establish the mind-set to clearly define and satisfy your present needs effectively and painlessly.
I believe in the power of the free enterprise system to regulate markets, including the mortgage markets. Consumers dictate standards of quality, marketing practices, and product acceptance when they ‘‘vote’’ with their dollars. This book provides the information you need to make informed decisions about the products you buy and the companies from which you buy them. You will engage in the mortgage process fully aware of and responsible for knowing what your obligations are and may become, and what you must do to remain in a position to fulfill your mortgage obligation and other financial commitments.
Educated borrowers and healthy competition between mortgage providers will go further to protect borrowers and markets in the long term than government bailouts, incentives, or regulations. When enough people are informed and responsible, only those organizations and products that responsibly serve the needs of the public will survive in our free enterprise system. You don’t have to depend on the government to protect or save you. You can take care of yourself !
You have the power!
Not long ago, home owners were regularly bombarded with direct mail, telephone solicitations, and media advertising for mortgages that sounded too good to be true. Zero percent introductory interest rates, 100 percent financing, and promises of ‘‘no income verification’’
lured uninformed borrowers into mortgages that were, in the long run, not the bargains they were touted to be.
Borrowers who thought they could skate through to reasonable refinancing when the ‘‘honeymoon’’ was over on these loans now face monthly mortgage payments they cannot afford. Making matters worse, they have few, if any, options for refinancing, or for selling their homes, which are now worth less than they owe on their mortgages.
There is no denying it; the situation is a mess, and for the individuals and families who are struggling, it is deeply upsetting. But is the solution really more government regulation and multibilliondollar bailouts? Who pays? We all do.
There is nothing inherently wrong, unethical, or deceptive about mortgage products, such as those mentioned earlier, that facilitate home ownership or provide borrowers payment flexibility. These products and others, such as hybrids, home equity lines of credit, and flexible option ARMs, address specific and legitimate market needs.
The problem arises not from the product but from the sale of the product to, or use of the product by, someone for whom it is inappropriate and for whom it may cause financial harm. Many people face foreclosure because they were not conscious of or responsible for the risk of conditions that could harm them, and because they were wishful about their current and future financial status, rather than objective and realistic. Many others simply are hard hit by the economic downturn and trying to keep their homes and meet their obligations.
In writing Navigating the Mortgage Minefield, I set out to walk prospective borrowers through the thought processes they need to apply information about mortgages to their own financial situation in a manner that develops a responsible appreciation for their capacity to afford a home and honor the terms of a mortgage without hardship and sacrifice.
I’ve arranged the book to deliver the information that you need to know about mortgages and about yourself as you advance through the mortgage process. The first chapter introduces mortgage products and the mortgage market, and outlines eight important things for you to keep in mind as you navigate the mortgage minefield. Chapter 2
distinguishes between the mortgage for which you may qualify and the mortgage you can afford. It describes all the costs of home ownership a and gives you an unemotional and factual look at your current finances and money habits so you can determine the monthly mortgage payment you can afford.
Chapter 3 discusses situations in which you should consider refinancing a and a method to evaluate whether it makes sense to do it or do nothing. It also provides useful tools to avoid confusion when you compare different offers so you can remain focused on your personal needs and goals.
Chapter 4 helps you to understand what contributes to the value of your current or prospective home and assists you in navigating through some potential hazards related to your property, such as easements and zoning restrictions. It describes circumstances and events that can directly or indirectly affect the value of your home, and ex-plains what you can do to maintain the value of your home and your investment in it.
When you know what you can afford for a mortgage payment a have a budget that includes the multitude of nonmortgage expenses associated with home ownership, and are aware of what to look for in a home to protect your investment in it, you have what you need to enter the mortgage market and take control of your financial future.
Chapter 5 guides you in seeing your financial creditworthiness as lenders see it, and provides you with ways to improve your credit score and other ratios that lenders use to determine whether to lend money to you, and if so, at what cost. Chapter 6 explains basic mortgage products, various features and options available and how you can package them together to create the right loan for you. Chapter 7
helps you to define your financial limits and the objectives you want your mortgage to achieve. It alerts you to mortgage advertising that could lead you astray, and gives you the tools you need to compare offerings to your ‘‘shopping list’’ of mortgage features, rather than trying to compare offers to one another.
Chapter 8 puts you powerfully in charge to find a mortgage professional with whom to do business. The specific questions you ask the mortgage provider about their proposed products and the way they do business allow you to have confidence in the information and advice they give you. The chapter also alerts you to more than ten additional mortgage and financial services of which you can take advantage at little or no cost. Chapter 9 prepares you for the mortgage application process, discussing what questions you will be asked, and why. It explains fees, costs, and the myriad of documents you will sign before you submit your application to a lender for approval. Chapter 10 offers you information about the kinds of insurance you may have to obtain in order for a lender to approve your mortgage. In Chapter 11
you’ll receive guidance in reviewing the fine print of the mortgage note and mortgage deed before the closing so you know that what you are signing is what you expected.
We wrap up with the things that can change and actions you should take, both with regard to your specific mortgage (Chapter 12)
and in the broader markets (Chapter 13). And finally, in Chapter 14 a we address what to do to avoid foreclosure if things go wrong. This chapter alerts you to the pitfalls of negotiating a mortgage modification with your lender, arms you with information about options your lender may not want you to know about, and prepares you to fight to save your home if you face financial distress.
The mortgage and housing markets will rebound, and over the next several decades will slump and rebound again, as they have done historically. The financial markets eventually will stabilize and credit will once again become available for home buyers and home owners.
You have the power, and now the tools, to make owning and keeping a home a reality. Regardless of changing market conditions, you’ll be able to navigate your way responsibly, so that you can enjoy your home, free from financial struggles. It is my privilege to serve as your guide.