Buying a house doesn’t happen very often and some people are not experts. Unfortunately mortgage brokers and gold diggers know that, so you need to be careful. Ask a lot of questions if you don’t understand something.
If you think employees at Ameriquest, HFC and Beneficial Finance are looking out for you — just don’t buy a house at all until you read this:
“It wasn’t until after I left the company that I realized how truly devastating the loans are. Signing a 26 year loan that raises an interest rate from 6% to 10% and takes on several thousand in fees can really destroy a family who made a rush judgement because of $100 savings and no payment this month. These customers who were refinanced at high LTVs are really going to feel the crunch now that Fannie Mae is cutting back so much on their conventional loans. These customers who were promised a better loan in 6 months will now have to wait years to get a better rate. I was sick to my stomach after learning about how truly miserable I made so many families just because they saved $100 a month right now.”
These companies operate on a commission basis, often in a pressure cooker environment. You get the sales pitch and the agent makes $3500 or more. The problem with subprime is the loan might be subprime, but the borrower actually qualifies for a regular prime loan at prime rates.
Many of the people described in the quote above saved $100 a month for a little while, and got to skip a house payment between the new loan and the old loan. That is part of the sales pitch.
After the adjustable rate increased the same people could not afford to make the new, higher house payment. A promise to refinance into another better loan in 6 months cannot be true. The Home Owners Equity Protection Act prevents it. Refinances should be a year apart, and must show some tangible benefit to the homeowner.
Unfortunately the sales tactic above contributed to the so-called ‘subprime’ crisis of 2007. The crisis will continue through 2009. Many adjustable rate mortgages will reset, and many people will lose their homes. While HFC and Beneficial Finance say they do not make adjustable (ARM) first mortgages at the branch level, they do write contracts that mimic them. They are part of HSBC, as was Decison One Mortgage before that unit shut down completely. The quote above may have come from a former employee of Decison One, but we are not sure. Either way it did come from a former HSBC employee.