Got Mortgage?

Quote of the day:
“I think God’s going to come down and pull civilization over for speeding.”
--Steven Wright

The other day I heard an “expert” say that we are having the worst credit crisis since the Great Depression. That may be true by some specific measure, but I haven’t seen any bread lines yet.

As usual, there is lots of analysis, speculation and prognostication about the mortgage-lending industry, interest rates and real-estate prices. There seems to be a lot more attention to lenders with serious problems than to the unfortunate and often tragic effects on individual lives.

At the center of all this is a basic business judgment--when a lender takes more risk, it expects more reward. That’s not necessarily a problem, except for two things:

1. There has been inadequate preparation for, or even acknowledgment of, the risks being taken when lenders extend credit to customers who usually are considered uncreditworthy. The attitude seems to have been that real-estate was going to continue to appreciate with no end in sight.

It’s the same thing some folks assumed about the stock market in the late 1990s. The mantra became “the usual rules do not apply.” The primary rule that does not apply was stated this way by Frank Capiello, a panelist years ago on “Wall Street Week”: “Trees don’t grow to the sky.”

We’ve all heard the words indicating that, indeed, trees do grow to the sky: “you can’t go wrong with real estate”; “real estate is the best investment”; “real estate always goes up.”

2. I believe anyone who is responsible and is at least close to having the means should have the opportunity to own a home. It’s not a bad thing when lenders take the risk of extending credit to people who are “close” but not quite “there” with their income or credit histories.

The problem is the sometimes-exorbitant price that lenders charge for extending this credit. Usually it is buried in high fees that are added to the mortgage amount, or in the ultimate rate or other terms of the loan. These terms may not come into play until 2, 3 or 5 years after documents are signed.

Of course, there are many people who simply cannot afford to buy a home, and should not be encouraged to do so. But those who are sincere, responsible and “close” should be helped, not soaked.

Many mortgage lenders did really try to help. But many did not. And that’s the problem.