Consumers Shop for Everything Except Their Mortgage

Believe It Or Not!

According to a new LendingTree survey of 1,317 homeowners conducted online by Harris Interactive in September, 96 percent of American consumers compare prices when shopping for anything, but nearly 40 percent obtain just one home loan quote. By comparison, when shopping for a home computer, consumers research an average of 3.1 models before making a purchase. This explains why fewer than 3 in 10 (28 percent) borrowers are very confident they received the best possible deal on their current mortgage.

Based on a nationally representative sample of current homeowners who were involved in shopping for their home loan, the study revealed 85 percent of consumers use the web to comparison shop, yet just more than 1 in 5 (21 percent) shopped online first for mortgage rates. Additionally, although nearly 40 percent obtain just one home loan quote, more than 9 in 10 borrowers (91 percent) understand interest rates vary between lenders.

Frustration also appears to be at the root of this shopping dilemma. According to the survey, 70 percent of borrowers find shopping for a mortgage frustrating, citing the complexity of the terms (21 percent) and time-intensiveness nature of the process (20 percent).

The survey also reveals:
• Though it is a decision that will affect them for the next 15-30 years, nearly three-quarters (72 percent) of homeowners spent the equivalent of a full working day or less shopping for their home loan. Even more shocking? One in 10 spent the amount of time it takes to brush their teeth.
• Twenty-three percent of homeowners recognize they could save more than $100 a month by reducing their mortgage rate by one percent.
• Women are more than twice as likely as men to say they were not at all involved with shopping for their mortgage or when refinancing (16 percent versus seven percent, respectively).

Proof the Fed Does Not Protect Consumer Rights

      I was dumb founded as I read this editorial in The New York Times of November 29th and so I am quoting the basic points below.

     You may remember when the movement to create a separate Consumer Protection Agency gathered force last spring.  Mr Bernanke was one of its fiercest opponents. I remember one droning disposition before the Congressional Banking Committee when he explained actions the Fed took in protecting the credit card consumer.  He talked about the size of the font and the length of the sentences and the clarity of the prose in bank disclosures.  Not a word about limits on fees, timely notice of raises in interest rates, collusion with other creditors in setting interest rates. Mr Bernanke was mostly worried about educating the consumer! Nothing about reforming banking practices.

      Congress did mandate more comprehensive changes to credit card regulations, in great part due to the efforts of Elizabeth Warren, and the Banking Reform Act did create a separate Consumer Protection Agency within Treasury, outside the purview of the Fed. This new proposal should remove any lingering doubts anyone ever had about the wisdom of taking consumer protections away from the FED.  Read and weep.

      "There are two sides to every delinquent loan - a lender who made a bad lending decision and a borrower who cannot repay. Yet, banks have never acted as if they bear responsibility for the mortgage mess.

They have . . .. resisted reducing principal balances for troubled borrowers, for instance, because that could force them to take losses they would rather delay.

Now, despite mounting evidence of borrower mistreatment, the Federal Reserve has proposed a rule that would disable the most effective legal tool that borrowers have to fight foreclosures.

First, some background: The Truth in Lending Act from 1968 gives borrowers the "right of rescission," the ability to undo a home refinancing or home equity loan within three years of the closing if the lender did not make proper disclosures - generally of the loan amount, interest rate and repayment terms. The law makes allowances for mere mistakes by the lender, but otherwise requires strict compliance, as well it should: disclosure is the main - often the only - consumer protection in the mortgage market. ... .  when a loan is rescinded, the lender must give up its security interest in the home - and without a security interest, the lender cannot foreclose. The borrower must still repay the loan principal, minus payments already made. Essentially, a lender that has not complied with required disclosures can get its money back, but not interest and other fees.

      In practice, one of the ways that rescissions have worked is that lenders faced with rescission have instead modified the loans, by reducing principal and setting new repayment terms. The Fed. . .  would require a borrower to pay off the remaining principal before the lender gives up its security interest. That would be clearly impossible for troubled borrowers. So the Fed's proposal would benefit the creditor who violated the law rather than the borrower, paving the way for foreclosures that otherwise could be avoided."

      Banks have already influenced our bankruptcy laws such that the one type of debt that cannot be extinguished or altered by a bankruptcy judge - you guessed it - is a mortgage! Now they want relief from responsibility for false representations!  Go talk to your senator about this. I have.

A Way to Save Mortgages that are Underwater

http://online.wsj.com/article/SB10001424052970204908604574330883957532854.html

In the above article Martin Feldman argues for lowering the principal balances of mortgages that are in default or on their way to default if the value of the debt exceeds the value of the home by more that 120%. Mr. Feldstein proposes that the government (that would be us, the deep pockets) compensate the banks for 50% of the forgiven principle and the banks eat the other 50%.
In exchange, the homeowner agrees to make the mortgage a non-recourse mortgage (details like changing appropriate state laws and bankruptcy laws to be worked out later). So, if the home goes into foreclosure, the homeowner is on the hook for the difference between what the bank nets on the sale and the balance of the mortgage plus all costs associated with the sale. Normally the cost of selling is about 10% of selling price, but the bank would have additional legal, administrative and loss of interest income costs. In this case costs could go as high as 25% of the selling price. This would be sure to happen if the banks continue to process short sale and foreclosure as their current glacial pace, which is 4-6 months in King County, where we don’t have an excessive number of homes under water.
As a real estate agent this sounds terrific - it would be good for business by slowing prices by slowing the number of foreclosures coming on market and thus slowing the fall in prices of other competing homes. Banks should love welcome it as another back-door subsidy, especially if they are reigning in their current lending in anticipation of further depreciation in real estate prices.
How about from the homeowners point of view? If home prices go up, they may be eventually up out of the deep water. However, I haven’t seen any market forecasters predicting a rise of 20% in home prices any time soon. Even though they have been wearing their rosy-red glasses lately, most look for a gradual leveling off. If you have 20 to 30 years left on your mortgage and you stay in your home, you’ll at least break even
What if prices go down more and that mortgage goes from 120% back to 140% of the price of your home? After all some astute analysts ( at S&P, Robert Shiller, Moody’s economy.com) are looking for further price drops. Imagine the pain then of having to dig into your own pocket to the tune of 20 to 40 % of the price of your home, plus 10 -25% of that price (all the costs associated with selling it). Not to mention the higher taxes you’d pay to fund the program in the first place.
Those are the risks.
Read the whole article for some more of the benefits