Thursday, July 26, 2007

How about a 2 percent loan?

How about a loan with a 2 percent interest rate? Poor credit? No credit? No problem! Heard and seen it all before from Internet Lenders and don’t believe it? Well you’re not alone. Two out of three adults believe mortgage pitches are either only slightly credible or not credible at all.
More than one in five adults, 22 percent, are convinced mortgage advertising and marketing is not credible at all and that could be putting the industry's reputation at stake, according to a recent poll. Calling the results "no surprise" Harris Interactive conducted a poll that found many consumers have lost faith in the financing they need to purchase what's often the most expensive purchase they'll ever complete.

When the Harris Poll of 2,383 adults was conducted online between May 8 and 14, only about one in four had favorable perceptions about mortgage ads, with only 3 percent saying they had very favorable perceptions.

During the last housing boom, the mortgage industry experienced growing levels of predatory lending, fraud and financial crimes that spawned a swarm of complaints from civil and class action lawsuits to federal investigations of organized crime. Collusion, conspiracy and insider aiding and abetting among other sectors of the real estate industry share the blame for consumers who believe mortgage ads are empty lures.

Today's growing number of foreclosures is largely attributed to mishandled underwriting for subprime, nontraditional and other risky mortgages. Until recently, and for several years, millions of loans were approved, based not on a long-term ability to repay, but based on the ability to repay the loan at the starter or teaser mortgage interest rates. The ability to repay was also often misstated, not corroborated, ignored or otherwise simply not factored into the underwriting.

Since the boom waned, interest rates on many loans have risen, pushing monthly mortgage payments out of reach and more homes into foreclosure. The mortgage market morass is expected to cost 2 million people their homes before the market bottoms out. Worsening matters, the mortgage industry has since pulled to rug out from under hard-luck easy-money borrowers by making those same loans nearly impossible to obtain now. The move was certainly necessary to stop the bleeding, but it leaves homeowners at the mercy of a lender's workout, and the housing market swollen with inventory and falling prices.


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