What kind of mortgage did they offer you?

I am a homeowner. Okay, really I only own about 10% of my home. And when you consider that my husband and I both share that 10% I suppose that I truly only own about 5%. I guess that is about the size of one of the kids' bedroom plus a bathroom - not too bad, I suppose.

I have held this homeowner title for just over 3 years now. And for the most part it's pretty good. We enjoy having a place to ourselves - a place where the walls are not shared with loud neighbors, a place with a backyard for the kids to roam free in, a place that I can paint and repaint and repaint again if I feel so inclined.

As I have told you, my husband and I are both currently gainfully employed. And except for periods of education and one brief foray into full-time commission-only sales for my husband we have been so employed for the entirety of our adult lives. We feel blessed to have found work that sustains us and isn't excrutiatingly painful for our bodies or our minds. And these jobs have allowed us to make our mortgage payment without fail for 36 months so far.

But let me tell you how we got here. Shortly after we were married we decided the time was right to buy a home of our own. I had been going stir-crazy in apartments for several years and was itching to get out and get into someplace I could call "ours." At the time we were ready to apply for mortgages my husband was about 60% through his aforementioned stint in sales. Now many people can make a lot of money in sales. It's a decent living for many folks. But as much as I love my husband and am happy to extol his many virtues to you, salesmanship is not among them. He's just not a natural salesman. He's a nice guy. A nice guy who likes to have direction and structure. Convincing people to buy something that might need and might want just isn't his forte. In other words... he wasn't making a lot of money in the sales world.

The first mortgage lender we met with was not concerned about this fact. I made a good income. And she was glad to inform us that we could just "state" his income. "State" his income? What on earth does that mean? If you haven't read a newspaper in the last 5 years I'll give you the gist - it doesn't matter what you make. You just "state" that you make a certain amount of money - no supporting documentation required. So while his actual income for the year may have been in the 4 digits she was happy to let us state any amount we found reasonable.
Our second problem was that we had no money saved for a downpayment. We might have been better prepared but a sales job requires lots of investment into a salesman's wardrobe (read: suits) and tools (read: laptops). Plus I had only recently finished my Master's degree so I hadn't been back in the working world very long. No matter. They were happy to lend us 100% of the value of the property. We did have a few thousand in savings for an escrow hold and closing costs. But there was even a solution for this non-problem. They would gladly roll the closing costs into the loan amount and let us finance it.

We eventually went to a second lender for comparison. They weren't as keen on stated income but had no issues with 100% financing. And they had one final solution for us to keep our mortgage payment as low as possible - a 40 year loan. 40 years? As in, I'll be at least a decade into retirement before we reach full amortization? Yeppers!

In the end we found a solution with the second lender. A 40-year ARM for 100% of the sale price. We elected to not "state" any incomes and were able to qualify on my income alone. We were smart enough to recognize that we should at least limit what we borrowed to 3x my annual salary.

Our story has a happy ending. One month after closing my husband landed a salaried position in his previous field with a salary approximately equal to mine. In the end loan value was only about 1.8x our combined annual salaries. Very reasonable by almost any standard. And one year after closing we refinanced to a 30 year fixed rate with a small fixed rate 2nd mortgage (no we did not take cash out). Having a 2nd is not ideal but at least we know what we'll be paying next year and the year after that. And we've been fortunate enough to manage to increase our salaries each year making the payment even easier.

And we are working on a plan to be completely debt-free, including our mortgage in the next 15 years.

But not everyone has the same ending. We KNEW we were signing up for a 40 year ARM. And we had a plan to refinance to a fixed rate as soon as possible and wise. Too many others didn't know what they were signing up for. And eventually something in that fine print came to bite them in the rear.

The real question is why did this happen to so many people? I think there are a lot of causes. Lenders, at the behest of Congress and the Community Reinvestment Act of 1977, made it as easy as possible to get into a mortgage. They offered ARMS with low introductory rates. They offered stated income plans. They offered 40 and 50 year loan terms. They offered interest-only loans.
And while I'm sure many of the mortgage brokers and consultants out there are upstanding business people who tried to disclose all the information I'm sure there were others who tried to hide anything unsavory.
And the other reason... people didn't read what they were signing. They were so excited to get into that shiny new (or new-to-them) place with a driveway and a mailbox and a backyard and a playroom for the kids, that they signed without reading.
So while it is certainly an obligation of the lender to disclose pertinent information the truth is that everything was in writing. Everything. All they had to do was read those documents - all 887 (at least it felt like that many) of them.

"But, but.... those documents are so confusing and in such legal-ease how can a person be expected to read them?" you ask. I read them. My husband read them. When we didn't understand something we asked our realtor or our lender to explain. Of course, we have a higher education background. Certainly I am not saying that one must be college educated to own a home. Most certainly not. But I believe one must be aware enough to know their own limitations. Anyone entering into any contract (yes, a mortgage is a contract) should be able to either read and understand the documents themselves or know that their understanding is limited and know to ask someone independent (not the lender who is trying to close the deal) to read and explain it to you in terms you can understand.

In the end, no matter how slimy your lender might be, if you read before signing you would at least know what you are getting into. And you can make an informed choice on whether these are terms you can agree to and maintain. And if they aren't you can walk away until the terms or your situation changes. Making the assumption that your name is not forged on the contract documents, no one gets you into a bad contract without your consent. And so while others may have blame for being less that forthright, we can only control ourselves and our reaction to such people. My reaction to people who I believe are being untruthful is to verify, verify, verify. If I fail to do that and end up with a bad outcome, I have no one to look to but myself.

So tell me... what crazy mortgage variations were you offered? Which did you sign up for?

As an aside... how many congressmen and women do you think actually read all of the stimulus before voting? How many of their aides even read through the whole thing?