In all fairness to the way they currently write mortgages, and from being in the business for a short while, I must say, that they have it all wrong. I removed myself from the industry because I had a conscience. Yes folks, some actually do. In fact, I turned clients away, and lost commissions because I refused to bury a person in a home that they were one paycheck away from missing. Of course, they went elsewhere, and yes folks most lost the homes that I refused to put them in. So, I sat down and thought about what we could do to make sure that this never happens.
Here’s what the Federal Government should do: 1. ) Use a borrowers net income.. not their gross. No one sees their gross income. So to use this figure is already setting the borrower up to bite off more than they can chew. 2.) When you apply for a mortgage, they should look at the federal guidelines for a family of x for food, utilities, miscellaneous expenses. 3.) They also need to consider the average weekly costs for fuel for a vehicle, car insurance, discretionary funds in case of emergency, and factor all of these in.
In doing this, they will come to an actual amount that the borrower can comfortably afford, thereby not putting the borrower at risk of default. They ask us to pay title insurance, private mortgage insurance, etc. Why do we pay these insurances, if they are not going to provide us anything if the borrower has a financial difficulty. Useless is what it is.
There is one thing that disturbs me about the new mortgage process. The Federal Housing Agency (FHA), which is currently the most used mortgage, has specific guidelines that need to be met to obtain a mortgage with them. However; banks are now setting guidelines over and above these already difficult loans to get, making it near impossible to obtain one. Most of the declines for the FHA loans are based on the fact that the insurance companies that are available and issuing insurance on these loans are requiring a much higher credit score than the loan itself, thereby killing the deal.