The loan system can suck

[bankworking]

For some reason, I can't seem to get this out of my head. I know I can't keep someone from making their own decisions, but sometimes I just want to... i don't know, shake someone.

This lady has damn near perfect credit.
She paid off her mortgage back while she was still working, no credit card debt. Has a decent, though in no way extravagant, fixed pension with occasional cost of living increases that hopefully will tide her over for her retirement.

But at some point, said lady decided to go for the lovely piece of loan known as the adjustable rate, interest only, home equity line of credit.

For those for whom the above description is not enough, this loan:

1) has a rate that WILL go up when rates go up (NOT if. this is a LONG term loan, and seriously people, do you really think today's interest rates are going to last?)

2) has a minimum payment of interest only. Thus, if you pay only the minimum payment, you do not pay down the actually loan AT ALL. This also makes it a very low minimum payment, which can make a person not realize how deep of shit they really are in.

3) will take your HOME if you do not pay it


Said lady wants to increase the amount by another twenty five thousand dollars, the current fifty thousand having been close to maxed out. Now, the home itself is worth almost 150,000, and as I said, she's got near perfect credit.

But if she gets this increase.

If she maxes out the new amount (which history so far shows is very likely).

While the current low interest rate will make the minimum payment (the ONLY thing she was really interested in hearing about) something she should be able to easily handle, if she were actually to try to get rid of this loan, she... well she couldn't. Her entire monthly take home income is NOT enough to pay off this loan in 25 years, even if she had not a single other thing to spend her money on.

But she might be able to somehow manage to pay interest for the rest of her life on a loan that never goes away.


I don't know. Maybe it's better than paying rent.



I might feel better about it if she were planning on using the money for something she needed instead of buying her very bratty "I want it now" 19 year old granddaughter who doesn't have a job and who does go to school and live in locations that have a very good bus route between them, her very own first car.


But the home has the value, plus some.
And the 'numbers' show she can afford interest-only payments even if rates do rise (up to a point... always up to a point).
And maybe she's just... okay with slowly giving her home away to a bank. After all, she'll probably be able to keep up the payments until she passes away. You know, if no big medical bills that her insurance won't pay for arise. I guess that's what a reverse mortgage does, gives someone extra money and gives the bank the house when they eventually die.


But the whole situation just made me feel really bad, like getting her loan approved would be the worst thing I could do for her.


I just can't seem to get it out of my head. And I'm not sure if it's arrogant of me to think that maybe she shouldn't be approved. It's her home. If she wants to spend away the value of it, that's her choice, I guess.


Not exactly a moronic manager thread, I'm afraid, unless the loan system in general counts. I just didn't feel quite right putting this in the more open sucky customer thread, and I'm not sure if it fit there either.

Just wanted to vent. Thanks for listening.

[Geek King]

If she's been this good with her money up to this point in her life, I'm wondering what else is going on. The cynic in me think she may have a terminal illness of some sort, or maybe a wasting illness, and is using the loan to have a last blast before she can't get out any more. Insurance pays for the care, minimal payments made out of the pension until she dies, and the bank gets stuck with the house after. I've heard of some old folks doing similer when they don't have family they want to leave stuff to.

[HermitIX]

My guess is she knows she isn’t immortal and would rather see her family enjoy the few extravagancies she can give them now. Her adult children most likely have homes of their own and don’t need hers. As long as she isn’t going to get in to trouble with the minimum interest payments in her lifetime I think its ok.

The first car is a huge milestone. It’s something that will be remembered forever. And when ever the grand child talks or thinks about that car they will think about the grand mother who got it for her. (Personally I would get my grand child a college education but whatever)

[Aethian]

My mom made me buy my first car, I don't see what's wrong with miss 19 year old doing the same.

[roothorick]

It's very possible the family doesn't want her house, and this is her way of washing her hands of it. In which case, it's the bank getting screwed, not her. Though it's not too bad for the bank -- they underpaid for a house that's worth a bit, and they'll be able to profit if they sit on it until the market recovers.

[Sapphire Silk]

Actually, the first thought that comes to my mind is elder abuse.

Bratty kids/grandkids pushing grandma "who has money and can afford it" for all sorts of things they themselves cannot afford, and don't care if grandma breaks the bank doing it.

[Irving Patrick Freleigh]

I have to confess I keep adding an "it" to the end of the thread title.

[Ravenzfire]

I work on the servicing end of the mortgage business and trust me I feel your pain on this one. My first thought while reading was that she is just planning on stringing the debt along through the minimum payments until she passes. However if she wills the property to one of her kids they get to jump through all kinds of hoops to take over the property and continue paying for it.

Adjustable Rate Mortgages in general are just rediculous. They are really only for people who are going to closely watch the current rates and try to either lock in or refinance once their interest only period is up. That's all fine and well and some ppl know what they are doing and an ARM works just fine for them. The problem comes when you get a standard Joe and his family that get suckered into one of these loans and then I get a call 5 years down the road with them either screaming or crying that there is no way they can make their payment anymore.

I want to be sympathetic becuase 9 times out of 10 they weren't told how this type of loan works, they just see the interest only payment they have to make which is usually pretty low and they go for it. However, don't sign your name to something unless you know exactly what it entails, especially if it means you may lose your house over it.

[Seshat]

The cynic in me says that many of these loans were created expressly for this purpose - to legally get as much money out of these people as possible, and who cares what damage is done to them?