Where Dragons Rule

In recent months, there has nearly no good news about the real estate market, with adjustable rate mortgages jumping, foreclosures rising, and home values dropping.

The affect of all this negative news is comparable to watching a train derail, crashing into cars, buildings, trees, and other objects. The difference is that this train is headed straight for us all.

Through reading many of these horrible news articles, one main point seems to be recurring in nearly every story: people are taken advantage of when they trust someone to help them.

They trust their mortgage broker to get them "the best rate," not knowing that the best rate will jump upward in a couple of years, doubling or tripling their mortgage payment. The mortgage broker will take his large commission and the temporarily happy homeowners will forget all about the adjustable payments until the trap has been sprung. In fact, the original mortgage company that wrote this trap loan will have sold the loan long ago to another company that is well aware the loan has a high chance of default once the adjustable rate explodes. The original lender dumps all of these risky loans on investors and servicing companies that will handle the inevitable foreclosure.

People trust their jobs to be stable, or their health to be perpetual, or the world to not throw hardships at them. And every time, their trust is horribly betrayed. Jobs come and go. Health fails. Life happens. If the homeowners are not prepared for this, then they will have to scamble around for the money to pay for basic necessities: food, water, and shelter.

Shelter is the one basic necessity that people let their lack of knowledge about get them into bad situations over and over again. They believe that they "need" a home that is just one step bigger than their coworkers, friends, family, and neighbors own. So they trust mortgage brokers, lenders, and Realtors to give them the best deal. Then in a few years, something happens, and they find themselves in foreclosure, their payment dramatically rising, with no help from the mortgage broker, lender, or real estate agent.

And the broker, lender, and agent know all along that the original loan they are working on is going to be dumped on some other company before it becomes a huge problem for them. Once the loan is sold, then no blame can be given to the original parties to the loan. Most times, the homeowners may not even remember who the original broker, lender, or agent was that helped them purchase their home.

But now they find themselves behind in payments with a mortgage company that may not even have the loan documents. A servicing company collects the payments for a secretive group of investors, who are the real beneficiaries of these loans. And they will benefit regardless of the loan going into foreclosure or not.

Homeowners can win in this situation, though, but it will not be through trusting someone else again and again, and remaining ignorant of how foreclosure works and how it can be stopped. The first step in saving a home should be gaining the knowledge the homeowners should have had long ago. It may be asking for information, or reading some basic introductions to real estate and foreclosure. This can be done in a few hours, and the homeowners will know far more about how to stop foreclosure than they ever did before.

They won't have to fall into another trap, set by a foreclosure help company that turns out to be a foreclosure scam. They may have fallen into the adjustable rate mortgage trap and had it sprung on them when they were least able to refinance the loan. Homeowners who know about the foreclosure process (even on a superficial level) will significantly increase their chances of being able to stop foreclosure.

Stop trusting people until you can reasonably trust yourself, and understand how the mortgage products work that you are purchasing.

You wouldn't buy a car if you knew the gas mileage would decrease from 25 miles per gallon to 3 miles per gallon after two years, right? Then why would you buy a mortgage that will double in price in two or three years?