Ethics and Real Estate
News broke this week about troubles in the subprime mortgage lending industry. According to CNN.com, "This is a loan to someone with a bad credit history. These people pay higher interest rates, earning more money for lenders - so long as the mortgage payments keep coming." Generally these mortgages involve little to no money down, and often have adjustable interest rates that fluctuate based on the prime rate.
It amazes me the kinds of mortgages that have been allowed in recent years. The mortgage lenders are truly setting the consumers up for failure.
If someone cannot come up with a downpayment for a house, is it reasonable to think that they will be able to pay their mortgage? And what happens when the inevitable major repairs are needed?
If someone cannot qualify for a mortgage at the going interest rate for a 30 year fixed-rate mortgage, is it reasonable to think that they will be able to afford the payments when the interest rates rise? Did people really think that interest rates would stay as low as they were in the first few years of this decade?
If someone has bad credit, is it reasonable to think that they will do any better with a mortgage than they did with other lines of credit?
Growing up, my parents taught me about housing costs from an early age. The amount you put out per month for mortgage/rent, insurance, and property taxes should not exceed 30% of your gross income. Period. They also taught me about putting away money in to savings every month. "Pay yourself first", they would say. Oh, and make sure you are fulling funding that retirement plan as well.
When I bought my first home at age 24, it never occurred to me that anyone would put down less than 10% when buying a home. When I moved to my second home at age 32, it never occurred to me that anyone would take anything other than a fixed-rate mortgage when interest rates were just over 5%. And I certainly knew all along to not spend myself in to such a situation that my credit would be damaged.
I don't believe that everyone needs to be a homeowner. Yes, it is a great thing to aim for, and hopefully everyone will be ready at some point. But there is nothing wrong with renting either. I know many very successful people who either have always rented, or who rented until they were well in to their 30's or 40's. There's nothing wrong with that.
What is wrong is people getting in over their heads. Individuals are certainly responsible for their own actions. We live in a society that is so materialistic that spending is rampant and debt is severe.
But these subprime lenders that are passing out money to those who really do not have a foreseeable way to complete their mortgage obligation are, in my opinion, acting outside the bounds of ethics. If these lenders are not acting in good faith, truly believing that their customers can afford the mortgages and will pay them off in full, then I believe they are also acting outside of the law.
And frankly, any other financial or real estate professional who works with these lenders is acting unethically as well.
It's time for some investigations in to the real estate industry. This situation is pathetic. And so are the people who are allowing it to happen.
It amazes me the kinds of mortgages that have been allowed in recent years. The mortgage lenders are truly setting the consumers up for failure.
If someone cannot come up with a downpayment for a house, is it reasonable to think that they will be able to pay their mortgage? And what happens when the inevitable major repairs are needed?
If someone cannot qualify for a mortgage at the going interest rate for a 30 year fixed-rate mortgage, is it reasonable to think that they will be able to afford the payments when the interest rates rise? Did people really think that interest rates would stay as low as they were in the first few years of this decade?
If someone has bad credit, is it reasonable to think that they will do any better with a mortgage than they did with other lines of credit?
Growing up, my parents taught me about housing costs from an early age. The amount you put out per month for mortgage/rent, insurance, and property taxes should not exceed 30% of your gross income. Period. They also taught me about putting away money in to savings every month. "Pay yourself first", they would say. Oh, and make sure you are fulling funding that retirement plan as well.
When I bought my first home at age 24, it never occurred to me that anyone would put down less than 10% when buying a home. When I moved to my second home at age 32, it never occurred to me that anyone would take anything other than a fixed-rate mortgage when interest rates were just over 5%. And I certainly knew all along to not spend myself in to such a situation that my credit would be damaged.
I don't believe that everyone needs to be a homeowner. Yes, it is a great thing to aim for, and hopefully everyone will be ready at some point. But there is nothing wrong with renting either. I know many very successful people who either have always rented, or who rented until they were well in to their 30's or 40's. There's nothing wrong with that.
What is wrong is people getting in over their heads. Individuals are certainly responsible for their own actions. We live in a society that is so materialistic that spending is rampant and debt is severe.
But these subprime lenders that are passing out money to those who really do not have a foreseeable way to complete their mortgage obligation are, in my opinion, acting outside the bounds of ethics. If these lenders are not acting in good faith, truly believing that their customers can afford the mortgages and will pay them off in full, then I believe they are also acting outside of the law.
And frankly, any other financial or real estate professional who works with these lenders is acting unethically as well.
It's time for some investigations in to the real estate industry. This situation is pathetic. And so are the people who are allowing it to happen.
posted by Susan | 7:35 AM
3 Comments:
When we bought our house, I was astounded at just how much money the banks were willing to lend us. We were approved to a level $300,000 more than the house we bought. We deliberately stayed at a level where, if one of us got laid off or something, we could make payments on one person's income.
That was Carol Ann (nmitford).
Bingo, Carol Ann! When we bought here 18 months ago, we were approved for enough to buy a house 2x the price of this one. Nope, we said. In fact, for our preapproval letter, we told them only to list the amount that we intended to mortgage, NOT what we were approved for.
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