Being a housing counselor is like nothing most have heard before. Most people don’t come to us until they’re experiencing a crisis…which is unfortunate. We started off just before the thick of the housing boom. However, during that time we were all about teaching you to save your money, budget, and improve your credit scores the old fashioned way. Calling up your creditors that you weren’t paying and haven’t paid in a long time and negotiating a payment arrangement to enter on a path to paying off your debt. As well as debt repayment strategies for creditors you were current on.
We decided to expand our financial literacy program to include housing education and boy did we put a lot of people in homes. The right way, a fixed rate mortgage that they could afford. However, a lot of people turned away from us once they learned that their finances were so out of sync that it could take up to two years of saving, paying down debt, and building your credit scores before our network of banks would finance them for a home. Now, some of those people have come back to us for counseling. No, not to purchase a home…they now need us to help them save it because they’re in foreclosure. They skipped over us because some, as we later learned, already had approvals with subprime and predatory lenders or had gotten them later on. I once had to tell a single, divorced mother why she couldn’t afford a $180,000 mortgage on a take-home pay of $2600 and therefore should start packing up and looking for another place to live. Instead of saving her home, we went over options she had to give the home back to the bank. I keep a box of tissues on my desk for moments like these and she went through about half a box. This poor woman had to uproot her children because of her painful divorce and this house had seemingly provided stability for them finally and I have to be the one to tell her “not so.” (I didn’t really say that by the way) It’s really hard on me as well. I have never cried in front of a client but sometimes you take it home with you.
Why couldn’t she afford the home you ask? Because it was an Option ARM, negative amortization loan that started off with an interest rate of 1.87% and kept adjusting upward after she made her first payment. She got out of it by paying the minimum mortgage payment which was less than the interest and by the time she got to us her mortgage balance had increased over $15k while her home value had plummeted. Her interest rate was approx 12% by this time, her payment had increased and she had only been in the home two years. She was only paying about $600 and she should have been paying close to $2700 for a full mortgage payment. More than 105% of her take-home pay. Yeah, that was a hard day at the office. THAT was in 2007! It's been non-stop ever since. There was once a time I could tell you which banks were going to go under based on the mortgages they wrote.
We started off helping people to buy homes and now we’re helping them to save them. Yes, neck deep in the trenches of the foreclosure crisis and I don’t see an end in sight yet. I’ve also chosen to chronicle my adventures at work. My Lord do I have some stories to tell. I hope you find it interesting.
So…What’s “housing counseling” anyway?
July 22nd, 2011 at 05:04 pm
July 22nd, 2011 at 05:17 pm 1311355020
I live in California's central valley, a foreclosure hot spot. I know a woman who makes $13 an hour and sold a home she could afford, rolling her 150k of equity into a brand new 475k home. She could not afford a 325k mortgage on an annual income of 27k. She has since lost her home (and her down payment!) to foreclosure. I know a second woman who makes 40k per year and bought a 460k home with nothing down. She too has lost her home to foreclosure. This sort of thing was RAMPANT here in the early 2000s.
July 22nd, 2011 at 05:45 pm 1311356735
July 22nd, 2011 at 06:20 pm 1311358831
I live in Sacramento. Since we live in a new zip code (all built the past decade), the foreclosure rate is sky high in our zip code. I honestly wouldn't be surprised if 95% of the homes end up in foreclosure/short sale when all is said and done. Has been cycling through since 2005 or so, has gone downhill from there, and honestly no end in sight! Of course, stories of people buying $600k homes with $40k incomes, abound. It is just assumed we put -0- down and that our house cost 25%+ more than we actually paid for it. So, everyone asks me all the time, "What are we going to do with our house." We actually bought on the low end, put 25% down, and have never borrowed a penny against it, but ask anyone I know and they would never figure it out. Assumption? Must be rich! Anyway, sad thing is we bought very young and can't say I knew much about mortgages or finances, but I am strong in common sense. Just scary to me how few people really thought these purchases through. 5 in 100? IS that all???
I am amazed at how many people are in *impossible* mortgages like you described, many that I know, who are in DEEP DENIAL. They are just putting off the inevitable. I suppose I should thank them - it is why the bust has been more of a slow trickle than a big bang. People are just hitting their breaking points at different times, but these foreclosures will be going on YEARS to come.
July 22nd, 2011 at 09:00 pm 1311368432
Jerry
July 22nd, 2011 at 10:22 pm 1311373357
I got the house paid off at age 32, so I have never had a mortgage since then. We have sold several times and have moved up in house size.
Our house is big, 3200 sq. feet and is valued at about $450,000. It is nice having no house payments and our taxes are low; about $2300 a year.
July 22nd, 2011 at 10:49 pm 1311374976
July 23rd, 2011 at 03:19 pm 1311434399
July 25th, 2011 at 01:35 am 1311557754
1. Make sure you are putting at least 5-10% down. Fannie Mae is already requiring 5% up from 3%.
2. Make sure you have cash on hand after you pay your closing fees (if there are any) Banks now look at your savings and translate them into how many mortgage payments you have in savings. For example. If your mortgage is $1500 and you have $15,000 in savings they will look at it like you have 10 mortgage payments in savings. This of course is totally disregarding other expenses. It may not hurt your chances for loan approval if you don't have any money left over but it certainly could improve them. Gone are the days of putting you in a house with no money in the bank.
3. I've said this before Cash! Cash! Cash! Have lots of cash on hand. We've been able to put people in homes although they are still dealing with collections (mostly medical). Banks feel more confident when there's cash to handle those expenses too. Most people have no money to pay their bills, which is why they're in collections. Very rare do you see someone with $1500 in random collections and $20k in the bank and they're just not paying them.
There's a budget risk that mortgage underwriters look for called first payment default. It's where after you've paid so much money to close your loan you are now broke and looking for your mortgage payment to come out of your future earnings. Sometimes a borrower may not have the money for their first payment even if their payment isn't scheduled for up to 45 days away. Now they look at savings to see how much or less of a risk you are for that before deciding if you'll get the loan.