Own Your Future!

Check out this article.

http://www.denverpost.com/specialreports/ci_4421584

So basically, an elderly couple on fixed income with escalating medical bills was encouraged to obtain an option arm loan.

What is an option arm?
-Basically, an option arm is an adjustable rate mortgage with payment options. You can pay interest, amortization or the minimum payment which is actually less than your interest rate. In other words, every month you make the minimum payment, you owe more on your house then you did before. When you owe 110 - 115% of your homes value.... hasta luego minimum payment and hello amortizing loan.

Is the option arm evil?
-Yes and no. It's definitely not for everyone.

Who is it for and why?
-Frankly, right now I wouldn't encourage anyone to take on an option arm. If short term interest rates were very low (i.e. 3%), the market was seeing strong appreciation (i.e. 5%) and the borrower is financially capable of making drastically larger payments should the negative amortization cap hit.
In other words, I only recommend this loan under certain circumstances for savvy knowledgeable investors who understand exactly what the loan entails.

Whose is to blame in the case of this article?
-No one likes to blame consumers (especially senior citizens on fixed income) for trusting a mortgage broker and not asking enough questions. That being said, consumers absolutely must understand the intricacies of their mortgage and always know their worst case scenario! If you are in a loan and don't know your worst case scenario, you need to find out and fast.
-Mortgage brokers looking out for their checkbook are also to blame. Few consumers understand loans. Brokers need to understand this and take on the responsibility to educate their customers. Broker - client relationships must be a win -win. The broker pays his bills and the consumer has the loan that best fits their needs.
-Regulation basically doesn't exist. The government could eliminate more exotic loans.

My two cents....
1. Consumers, take responsibility for your financial future. Be an informed client. Ask for references. No matter what kind of government regulation exists, there will always be brokers looking for maximum commissions with minimal regard for their clients.
2. Brokers, put yourselves in the shoes of the consumer. Make sure they are informed. Ask questions to make sure that this loan best meets their needs.
3. Regulation needs to exist. I believe broker licensing is the most important step. More disclosures that borrowers don't read won't help. Eliminating option arms will not fix the problem.

The Bottom Line:
Work to become an educated and informed client with a reputable broker whose priority is your prosperity!