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• Down payment and closing cost assistance
• 100% financing
• No minimum credit score required
• Flexible qualifying guidelines
• 30, 35 and 40-year loan terms available
• Fixed rate and fixed period Adjustable Rate Mortgages (ARM) options

During the housing boom, many of these loan agencies advertised to potential home owners, telling them to buy homes. Convincing statements like “Why rent when you can own” were resonating throughout all of America.

In fact, my wife and I almost took the plunge in March of 2007. We were looking at a property in a newly developed community and even went to their phase release. I remember waking up at 3:00am, driving to the house and dreaming about what we can do to the front / backyards. Luckily, the enthusiasm of buying our first home didn’t cloud our judgment in the end. I really need to thank the Irvine Housing Blog for giving me the necessary information to stay patient and wait. If it wasn’t for this blog, the home buying decision would have been a real net worth destroyer.

Getting a loan was never a problem a year ago, as companies like Countrywide gave everyone in the loan process huge incentives to approve loans. It didn’t matter if no one provided proof of income, nor did it matter that they were making $50,000 a year while buying a $500,000 house with no money down.

To make matters worst, the ARM loans were misused to the point that there are now millions of people facing foreclosure. We hear terms like sub-prime and HELOC abuse all the time but there are many mislead people in the average working class in serious trouble. These people are amongst us, they are our families and friends and not just people we hear about in the news. Being in California where home appreciation was one of the steepest in the country, I’ve seen my fair share of unhappy housing stories. I have two friends who are facing foreclosure and I can tell you that the foreclosure process is not something you want to go through. I totally overreacted when I wrote the post about ING’s disturbing ad (readers actually corrected me in that ING is actually a responsible lender and company) but if you see people you know suffer, you might do the same when ads like those come in your mailbox.

With so many people in such pain and the worst yet to come, Countrywide is still trying to advertise 100% financing. We can argue all day that it is really the people who brought their fate upon themselves but does Countrywide really have to help push them off the cliff?

Larry King Live on CNN interviewed two families in trouble because of the recent housing crisis last night.  The first family was starting to get behind on their payment, while the other already lost her home and is now living in her car!

Overview of the Two Situations
Family Hope
The first family (which we will referred to as Family Hope) lived in what they believed a $300,000 house.  They are starting to get behind in payments but they haven’t received their default notice yet.  They want to save their house but here are a few signs of why I think they haven’t really been doing something about it.

• Larry asked them how many months they are behind and they did not really know.
• When asked what their monthly mortgage is, they “think” it is around $2,100 - $2,200 instead of knowing
• They seem to have 2 jobs, but they believe it is impossible to come up with $2,200 to pay the mortgage.
• They are hoping that they won’t lose their house, but they aren’t making any effort to pay the mortgage payments and they’re not trying anything else to solve their situation.

Family Optimistic
The second family (referred to as Family Optimistic) is actually a female living with 2 dogs.  She is a notary who was helping mortgage companies approve loan documents.  Once the credit market and housing crisis started, no one could get loans and she was out of a job.  She knew she was getting into trouble at the beginning of the year and now she’s lost her 2-bedroom condo and just living in her car.  Even though her circumstances seem much worst, here’s what I observed.

• She didn’t try to delay the inevitable of losing her home.  Once she knew she was in trouble, she got rid of the house.
• She is out of a job and living in her car, but she found a part time job which gets her $500 a month.
• She is extremely optimistic, and truly believe that she will live through this crisis and find a job and get her house back.
• She is still genuinely thankful for everyone who donated money to her.

Thoughts on the Two Situations
Family Hope
It’s very difficult to understand why this family would think they could save their home when they aren’t even making payments.  To make it worst, they don’t really seem to know how many months they are behind on payments and what exactly the monthly mortgage payment is!

Larry asked them about the payment and after some mumbling (and probably guessing), they came up with a figure of $2,200. If that was true, why do they not think it was possible to come up with the payment with two incomes?  This family doesn’t even seem to be trying!

Family Optimistic
This lady on the other hand sounds more likely to bounce back from losing her home. Despite the fact that she has to sleep in her car every night, she is still extremely strong and optimistic about finding a job and one day living in a house again. She doesn’t know how she will do all that yet but she believes she will, she truly believes. I’m sure she will find a way, because she will keep trying.

What Can We Learn From This?
There are many things we can do to avoid situations like these.

1. It is absolutely necessary to have an emergency fund. We should setup an expense every month and pay the emergency fund account where we put money in and never take money out. If it was never needed, it means you were one of the few fortunate ones. There are many articles talking about having an emergency fund of 3 months of expenses but I think 6 months of your previous salary is much safer. With this fund, it is much better to be safe than sorry later.  Having an emergency fund would’ve helped Family Optimistic while she was trying to look for another job.
2. When times are good, you don’t spend the money but instead save as much as you can!  During times when money seems easy to come by, it is the best time to save.  I know first hand that it is very easy to spend more when large amounts of money are flowing our way, but life has its ups and downs and being prepared for the unexpected is always good.  If we don’t save when times are good, we may not have a chance when the tide shifts.
3. We need to be sensitive to our own financial situations.  Family Optimistic knew she was in trouble and moved on from her mistakes in a timely manner even though it meant her sleeping in a car.  In Family Hope’s situation, they still have a $300,000 house that they could sell and start over. This way, they can start saving up immediately for the down payment to another house in the future.  As it stands now, they are just furthering themselves into debt and delaying (or even eliminating) their chances to ever get a new house.
4. We absolutely need to cut our spending.  Family Optimistic is living off $500 a month while Family Hope cannot come up with $2,200 per month on two income.  As I mentioned yesterday, there are always ways to save more money!  Live frugally and be happy.
5. We need to act promptly with a sense of urgency!  Both of these families don’t seem to have the “I got to fix it now” attitude.  Family Hope should be cutting back on everything they are spending immediately and Family Optimistic should be out looking for another job instead of doing an interview with CNN!  The most responsible and sensitive person to our needs is ourselves.  Act immediately!
6. Believe that there is a solution!  Although Family Optimistic is in a much worst situation than Family Hope, she brings a feeling of optimism into her attitude which will propel her to find a solution to her problem.  I wouldn’t be surprised if she is back on her feet and sleeping on a comfortable bed in 6 months while Family Hope is sleeping in their cars by year end!

Final Words
Many situations can be avoided if we do some preventive actions.  In order to be trouble free, we need to be proactive instead of reactive.  If you don’t have one yet, setting up a family emergency fund for example would be a great first step.

Believing that a solution is achievable in any situation is also very important.  Never give up on yourself, even in a foreclosure situation.  It’s not the end of the world if you lose your home.  It just means you can start working towards your dream home again.

After I posted this post, my readers corrected me in that ING Direct is actually a very responsible lender and company. I apologize for overreacting to the sub-prime mortgage. In fact, after some research, I am recommending readers to sign up to their online bank accounts.

With so many news articles about subprime loan and people being suckered into low teaser rates that ultimately reset, one would think that there wouldn’t be many ads about mortgage products that shouldn’t be sold to the general public in the first place. Today however, I got an ad from ING Direct advertising their low Adjustable Rate Mortgage (ARM) rate!

I was quite disturbed by this ad because it was these same products that got the United States into the whole housing mess in the first place. Sure, ARM is a great choice for mortgage for a small minority of people. However, no where in the ad do I see that this type of mortgage might not be for everyone. All I see is:

During the initial 5-year fixed rate period, you can save more than $8,200 in interest compared to a 30-year fixed rate mortgage. (Interest savings is over the first five years for a $235,000 loan) Start saving today with an Orange Mortgage!

If you just read this statement without knowing much else about mortgages, you would think that you are saving so much money. I don’t see anything in the ad that says what the interest rate is after it resets in 5 years, nor do I see anywhere that advises people to seek advice from professionals first because this is not for everyone (not that these so called professionals really tell you much truth judged from what’s been happening the last few years).

To make this worst, the reason why I got this ad is because I once had an online savings account with them. Did I even ask for a mortgage product pushed on me? If I was really stressed out about my mortgage payment, I might just fall prey to this ad and apply for this type of mortgage. To make sure we don’t spend enough time to research this, the ad says:

Apply by February 19, 2008 to receive One Low Closing Cost of $895.

Great.

Way to go ING Direct.