I also feel that it is a copout for anyone to use the whole “I didn’t know what I was signing excuse” What about those smart ones who cashed out $200k or more, did the lenders come back and want a piece of that? Being in the business for 15+ years, and knowing how I conducted myself, and my staff, I find it hard to believe that everyone can get away with blaming the lenders, LO’s, etc. Blame Our President, and Alan Greenspan for getting us into this mess. 7 years ago, you could get a “free” HELOC loan take it up to 95% LTV, at 3% interest only for 5 years. Go ahead and debt consolidate, put everything into this “free” loan. Keep your cash in the bank. No one understands for most of the american population, their home is their savings account, retirement, etc. That is who is to blame. I knew when Greenspan was getting out of his job duties, and he starting raising the fed by 100 bps at a time, we were in for a rude awakning. People, this has been happening for over 2 years. WE have been in a deep recession since, and it will only get worst. People are losing their jobs at an alarming rate. Go to the central part of the US. The occupancy rate of a huge mall in a very large town I was in was 27%. 18 months ago it was 98%. The population has dropped in some towns by 25% in the past two years. EVEN the gaming industry is showing a loss.

Stop blaming the big wigs of these companies who dont even have their hands tied, their hands are chopped off. Their is nothing they can do. There are no investors to buy these b/c loans. They dont have the capital to invest in you. Write to the white house. Blame them. There is someone making zillions of dollars in all of this. Look there.

On the other hand, though there are plenty of “scummy” mortgage people who probably deceived borrowers, the burden of reading your mortgage paperwork is still on the borrower. Sure, there is a lot of paperwork, but the adjustable rate mortgage disclosure, in particular, is very understandable. It is not legal gibberish and it is also given to the borrower when he signs the original loan package to sign…and copy to retain and read long before the borrower has to approve it again at the closing.

I would bet my bottom dollar that Mr. Baily’s problem is not that he was not informed as to how much his loan could go up, but, rather, that he was sure that, given a little breathing room, he could get his financial house in order. And, it turned out that he didn’t get enough room. Though I have a lot more sympathy for Mr. Bailey than I do for Mr. Mozilo, he obviously refinanced his property while he was under some financial duress and was, in no way, as cautious as he should have been.

As a mortgage broker, I have not discouraged borrowers from accepting ARMs in general, but I always urge borrowers to go for fixed terms of at least 3 years. Anyone should be able to dig themselves out of a hole in that time. But, 1 year? That is risky. For at least the last 1.5 to 2 years, the interest rate for a 3-year ARM is a little bit lower than a 1-year ARM and not even that much different than a 30 year fixed rate. For most people, during this time, there has really been little advantage to accepting an ARM vs a fixed rate mortgage.

Mr. Bailey was obviously in dire straits, regardless, and then slit his own throat by going for the very lowest rate he could get, rather than giving himself that breathing room. In addition, the rate increase cap on a 1-year ARM is somewhat reasonable. It sounds like Mr. Bailey would have been in trouble, at some point, even with a fixed rate loan.

On the other hand, to avoid appearing like “Simon Legree”, most lenders are willing to work out reasonable terms…ranging from a refinance, to tacking the arrearage onto the end of the original term, to forgiveness of part of the arrearage, to an additional short-term loan for the arrearage. He needs to contact the right people and agencies and continue his dialog with his lender. He has to realize that the lender will probably suffer a bigger loss by taking his home or accepting a “short sale”, etc. It is to their benefit to work something out, not to be “hard-headed”. Mr. Bailey has to be as persistent with them to work out a mutually satisfactory solution as the lender would be in pursuing the arrearage.