Mortgage journalism has gone mainstream. Which means disinformation is being even more widely disseminated than before. A new article in Glamour Magazine warns that even smart women can get into trouble with mortgages and extols the safety and simplicity of renting — we souldn’t worry our pretty little heads about home loans, apparently. Even those with six figure incomes who really should be taking advantage of the write-off. In one case the homeowner earned $92,000 a year and had a $2,300 payment — not a bad loan from an LO / underwriting point of view. However, she got bronchitis and hurt her wrist, fell behind on her payments, and lost her house. While that’s sad it’s hardly the lender’s fault and not exactly related to the current crisis — classic case of no savings and inadequate disability / medical insurance. As the home was purchased with zero down I can’t imagine that the lender was that hot to foreclose. Her story ends with her happily renting a nicer home.
The article makes a lot of misstatements about the mortgage crisis. First, the author defines subprime as “a mortgage with an interest rate that wasn’t at the government standard.” Never heard that one before. When there is a government standard rate someone please tell me what it is. Then she claims that “when it comes to income, the general rule in the sub-prime market is ‘if you say it, we’ll believe you.’” Don’t recall that either; all my subprime reps wanted to see bank statements showing some cash flow.
The author blames the lender for making the loan when the borrower had insufficient reserves, saying “ten years ago it would have been virtually impossible for anyone with inadequate savings to get a loan.” Um, not true. Remember FHA? And I believe FNMA only required a couple month’s reserves as well. But regardless of the borrower’s mistakes or bad judgment it’s apparently the lender’s fault. I quote, “As nervous as she was, she didn’t see any reason to second-guess her decision. If her lender had so much faith in her, she reasoned, then why shouldn’t she have faith in herself?” So I guess now lenders are counselors, fortune-tellers, and baby-sitters. If a loan goes bad for any reason it’s the lender’s fault.
Even if the original rip-off was perpetrated by a real estate agent or seller, apparently. Another borrower bought a falling-down home (no inspection) with an adjustable rate subprime loan, couldn’t afford to fix it up, and finally walked away. And it’s worth “less than half” what she paid. She’s also happily renting (I wonder if the author is a landlord? The joys of renting and the perils of owning seems to be the theme here).
So I guess the moral is that if your house value drops you should just walk away and go back to renting. And maybe the article is right — people who find the idea of honoring long-term commitments that onerous should stay renters. But don’t say that even upscale earners (let alone regular folks) can’t deal with mortgages / home ownership. Anyone smart and committed can do it — I know a 35 year old cocktail waitress who owns 3 rentals houses and her own condo — guess she doesn’t read women’s magazines 
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{ 6 comments… read them below or add one }
“…the author defines subprime as “a mortgage with an interest rate that wasn’t at the government standard.” Never heard that one before. When there is a government standard rate someone please tell me what it is.”
There is a HOEPA ‘points and fees’ test that involves a government standard [for first mortgages, it is triggered when the APR exceeds the yield on comparable treasury securities by 8%]; but my guess is the only association that magazine author would make with Section 32 is that readers should HOEPA to be homeowners one day.
Funny! Yeah, I know about the “High Cost Mortgage” disclosures, but “standard government rate” isn’t even close. And it doesn’t mention credit or the strength of an application package, which is what generally makes an application sub-prime or alt-a rather than prime.
Before someone deems themself “smart” we should have a standard test for financial and mortgage skills. Just becuase you are smart doesn;t mean you understand the intircacies of mortgages. If you got your education from the media BEWARE! The media also taught people that a rate is like a report card and if you do not have the lowest rate possible something is wrong with you so now people who bought the logic are dealing with rates twice as high as the 30 year fixed was when they got half a point lower on their arm. So many people were so rate sensitive they lost all sense and did not take other aspects into consideration. A mortgage is very complex and personal, so that each person should make the best decision for them and NOT what the media tells them to do without knowing one thing about their situation.
One anecdote does not make a statistic.
A buyer can get the best rate, with the best terms and conditions and still default due to hardship.
Lenn Harley
Broker
Homefinders.com
As always Gina you find the most interesting, funny and pertinent things to right about. This one would fall under the category of funny. I find it funny that someone would right such an article. When we all know successful home ownership rather you own one home or 50 homes has to do with discipline rather than sex!
Without a doubt high income earners should plow money into real estate especially since the disciplined high income earners do not need the income and can afford to have it sitting in real estate for 10+ years. Many of the best real estate investors I know are woman! Anyways I guess everyone is entitled to their opinion even a ditsy Glamour Magazine writer…
I don’t think the writer gave us the whole story. For example, the homeowner who was foreclosed on put nothing down. What lender is going to be hot to foreclose on borrowers with no equity unless they are completely unwilling / unable to work out a retention program? Which should have been possible after a temporary medical setback? And this borrower lives in California, home of state disability insurance, so she wouldn’t have been penniless if unable to work. And she was over $32,000 in arrears when they finally took the house — that’s over a year’s worth of mortgage payments–nothing down and a free house for a year, sounds like a sweet deal to me… But I guess they don’t want to confuse their readership with the facts….
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