On April 1, 2009, we lost a lender in the mortgage industry that shouldn't have failed. They didn't offer sub-prime loans, option arms or any of the other gimmicks that haunted and hurt both the mortgage industry and the public. The company was Thornburg Mortgage, and they became a victim of the times, not, in my opinion, a contributor to the problem.
Maybe because of their demise, I became more attuned to the advertising going on, as usual, concerning the mortgage and real estate world. I simply couldn't believe what I was hearing. The lies, innuendos and misinformation that had for the most part disappeared with the onset of the crisis seem to have come slithering back. The more I heard, the more my rage grew. I have never understood what good comes from doing the wrong thing, but in former years, the trickery didn't carry as much significance as it does now.
The most outrageous of all of the advertising comes from those who tout "no cost" financing. Are you kidding me? Let us take a look at the damage this can do to the unsuspecting public and those who are not as financially sophisticated as they should be.
Some background before I discuss the problem. For years, the mortgage lenders offered loans without points and loans with points. A point is 1% of the loan balance, thus a point on a $200,000 loan is $2,000. The interest rate difference between a no point loan and a loan where you would be required to pay a point was about 1/4%. A no point loan may have been 5.5% on a 30 year fixed, and a one point loan might have been 5.25%. If you decided to pay the point, you would make up the cost by the savings between the interest payment at 5.25% and 5.5%. I generally advised taking the zero point loan because the payback was too long on a 30 year fixed, or any loan that amortized over 30 years. Brokers in those days would generally raise the rate over the no point loan to get enough rebate from the lender to pay the costs and make some profit and offer a no cost loan (the raise in interest depended on the size of the loan. The larger the loan, the smaller the raise). Obviously this wasn't really a "no cost loan", but the damage was minimal.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.