Scott Thompson, president of Sacramento based Mortgage Resolution Services, recently wrote an article about the serious mortgage delinquency problem in most parts of California. The Central Valley has had more than its share of casualties over the past several months and the pace at which homeowners are losing homes to foreclosure is showing no signs of abating. As Ive written in earlier posts, this is clearly not a problem exclusive to California. Michigan, Ohio and other states are in worse shape.
Mr. Thompson believes that the mortgage industry desperately wants the public to believe that these delinquencies are primarily the fault of borrowers who tend to do a poor job of paying their bills. If the problem could be explained as too many credit challenged consumers getting into the housing market at a bad time, a look at the actual cause of the problem can be avoided.
Most of those suffering difficulties with their mortgages are borrowers with a perfectly acceptable credit history who somehow got involved in a mortgage loan product entirely inappropriate for their circumstances. The real estate market was that good, creating wealth all across America at a staggering rate. No one wanted to be left out and the mortgage industry delivered products that allowed nearly everyone to chase real estate riches.
It was against this backdrop that zero down payment loans, loans with negative amortization , loans where borrowers picked their own payment, and interest-only loan products became the rule rather than the exception. Borrowers in large numbers, most with strong credit histories, were drawn to these loans because the loan either made home ownership possible or helped them to buy a bigger, better home. It was just too easy for homebuyers to get caught up in the mania and reach for a house, the purchase of which could only be achieved through the use of a non traditional mortgage.
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