Thursday, November 6, 2008

The "Just Say No" Mortgage

Everyone is acting as though the mortgage mess is something new, something recent, but I personally know that it was decades in the making.

About 20 years ago, when we were house-hunting, we had a pair of mortgage brokers come to our home to review all our finances and assist us with our mortgage application.

We sat down at the dining room table covered with our bills, savings passbooks, checkbooks, income statements, and any other thing that a company offering to lend us mortgage money might like to see.

They opened their attaché cases and pulled out stacks of forms and a pair of calculators. After about an hour they came up with their recommendation.

They proposed that we go for a “no doc” [no documentation for those of you who haven’t been through this agony] loan, tell the mortgage company that we earned $94,000 annually, and – swish –there was an easy loan.

We weren’t happy.

First, they were asking us to lie about our income on forms that were ultimately legal papers; with a “no doc” the mortgage company wouldn’t see our income. If our lies were discovered the mortgage company could call the loan, that is, they could declare that the entire loan amount was due immediately.

Second, there was no reason to lie. We were putting about 60% down on the house and had more than enough income to justify the mortgage we needed.

Third, a “no doc” loan had an interest rate ¼% higher than a documented one. One little thing they neglected to mention.

And one other consideration: did we want to do business with brokers who were proposing – nay, recommending - that we lie?

We “just said no”, sent them on their way, and had no problem getting a mortgage at a good rate which was paid off long ago.

mortgage: Word History:
"The great jurist Sir Edward Coke, who lived from 1552 to 1634, has explained why the term mortgage comes from the Old French words mort, “dead,” and gage, “pledge.” It seemed to him that it had to do with the doubtfulness of whether or not the mortgagor will pay the debt." - American Heritage Dictionary of the English Language (2000).

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