Subprime Bailouts

Congress is starting to rumble about devising a program to bailout subprime borrowers. Now that adjustable rates have started to rise, potentially 1.1 million homeowners could be forced into foreclosure in the next 6 months. The government isn’t suggesting it will pay off loans, but that a program focused on counseling and loan restructuring could help the problem.

No offense, but I don’t want my tax dollars to pay for this program. Why isn’t accountability being pushed back on the agents, lenders, and underwriters that started this fiasco? Granted, many of these companies are defunct now, but shouldn’t individuals still be held accountable?

As a real estate professional, it is my duty to help clients find housing they can afford and explain how their decisions now will affect their home value in the short term and long term. “Choose to pay a little less now and live on a busy street? When it’s time to sell, your days on market will be longer and most likely you will not enjoy as much price appreciation as similiar homes on a quieter street.”

Lenders should do the same. “An adjustable rate mortgage will do just that, adjust. While the rate today may result in a payment of $X, if rates were to rise, you may expect your payment to increase to $Y. Is that something you will be able to afford and feel comfortable with?” Just because a client doesn’t ask the question, it doesn’t mean that you shouldn’t explain a potential situation to them. It is actually more imperative that you do explain possible “worst case scenarios” to them because they are probably unaware that the scenario exists and what it would mean to them.

Really, nothing makes my blood boil more than when industry professionals don’t look out for their clients’ best interests. If your lender or agent takes a short term view of “I just need to close this transaction,” consider using someone else or at least getting a second opinion. A significant portion of your financial future is riding on the advice they give you. Make sure their short term goals won’t result in a long term financial problem for you.