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While You’re Profit-Taking, Help Yourself To An Affordability Product

by Peter G. Miller
February 29th, 2008

Affordability Products?

You have to give the lending industry credit. When it comes to double talk, these folks would elate George Orwell.

“As home prices rose,” says FDIC Chairman Sheila C. Bair, “one way to keep the monthly payment in check, for a while anyway, was to take on an interest-only or payment-option mortgage. These so-called ‘affordability products’ permitted zero or negative amortization of principal in the early years. But that was followed by potentially large increases in the monthly payments once amortization kicked in (typically after five years).”

Give credit to Ms. Bair, at least she uses quotes. Others don’t. They actually call toxic loans “affordability products” with a straight face.

But the idea of calling toxic loans “affordability products” leads one to wonder what other, er, curious, phrases might be out there. For instance:

___With reverse mortgages, if someone drops dead that’s called a “maturity event.”

___The stock market never goes down. If prices fall, that’s “profit taking.”

___Or this, the wildly misnamed “Bankruptcy Abuse Prevention and Consumer Protection Act.”

“Congress,” said President Bush yesterday, “needs to act to help homeowners avoid foreclosure. Unfortunately, the Senate is considering legislation that would do more to bail out lenders and speculators than to help American families keep their homes. The Senate bill would actually prolong the time it takes for the housing market to adjust and recover and it would lead to higher interest rates. This would be unfair to the millions of homeowners who make the hard choices every month to pay their mortgage on time and it would be unfair to future home buyers.”

Right. The real issue here is that Congress now wants to allow bankruptcy courts to modify mortgage terms — just as courts were allowed before 1978. Mind you, bankruptcy courts never lost the right to modify the terms of a yacht loan or the mortgage on a second home, but under the 1978 legislation judges no longer could help homeowners.

In 1978, of course, there were no option ARMs, few if any stated-income loan applications, etc.

FHA mortgages, for the most-part, are fairly straight-forward. No prepayment penalties. No mega re-sets. No bizarre terms. Where’s the sport?

You can read about bankruptcy changes in 2005 — and how they increased foreclosures — by pressing here.

Also:

Do you have an “unusual” or “curious” term you want to share? Send it along, with interest rates rising we could all use a good laugh.

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This entry was posted on Friday, February 29th, 2008 at 3:56 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “While You’re Profit-Taking, Help Yourself To An Affordability Product”

  1. D. Reed Says:

    I read about FHA “Hope” loans. You can’t get a job, so you can’t get re-financing on stated income, even if your new loan is only $60 more a month. But FHA will help – yeah, they sure will. You can get a loan with FHA but they will take all the profit that you would get from selling your home, which is the main reason for owning a home. The government ruins the economy, so you can’t get a job. Then the government doens’t allow you to get a mortgage. You can only get a mortgage so the government will obtain all the profit from the sale of your home? IS THIS TOTALLY INSANE1

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