PT 2. – Stop Looking for a Program…

(Sorry, I couldn't decide on which picture to post)

One Monday in May 2008, I was driving from Dallas, TX to Austin, TX and had rented a car with XM satellite radio. I had tuned in to a show that was hosted by an alumnus of the same university that I attended. This talk show host as many do had someone on that was his shows resident mortgage guru. This young lady obviously made her income in the mortgage arena and was very impressive in her knowledge of credit programs and other measures to “get you in the home you deserve…” Now during this interview the interviewer & the interviewee made the statements:

1. The President needs to bring back the Sub-prime Mortgage market & revamp it because it allowed Black folk access to financing to purchase homes.
2. There are still programs that allow purchasers to put No-Money Dow that will allow persons to purchase a home by borrowing 103% Loan-to-Value (LTV)
3. I heard of a Vacation Program…

I listened the next 30 min while yelling at the radio the entire time. If you read Part 1 you will now see the culmination of my financial disdain for those few African-Americans in the financial services arena that spew incorrect information in order to pad their pockets while continuing to fleece our the community… Damn Leaches. I am not attempting to become the Armstrong Williams of the African-American financial community, but if I do then so be it… I will stand proudly in my Frat Brothers Company.

The President needs to bring back the Sub-prime Mortgage market & revamp it because it allowed Black folk access to financing to purchase homes.

Whilst listening to the financial interview I had to yell… “What housing market are they looking at?”

What is Sub-Prime?

In general, subprime lending (also known as B-paper, near-prime, or second chance lending) is lending at a higher rate than the prime rate. However, in US mortgage lending specifically, the term "subprime" simply refers to loans that do not meet Fannie Mae or Freddie Mac guidelines. While often defined or defended as lending to borrowers with compromised credit histories, the Wall Street Journal reported in 2006, 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.

So with the term defined, I offer this mode of thought… if you have a “Compromised Credit History” You don’t need to buy a house you need to pay your bills and understand that the only thing that can improve your credit is “Time.” Stop Looking for a Program. Any Program that cleans valid negatives from your report is fraudulent and may leave you with a legal issue. Again the only thing that can improve your credit is “Paying your Bills & Time”

Please if you get the chance to rent or see the movie “Maxed Out”… in this movie there is a lady in the movie who is a learned Harvard Professor in the area of finance & economics. She describes a time she was asked to give a lecture to a group of bankers where she described a method they should pursue only lending to the best most credit worthy borrowers. At the conclusion of her lengthy lecture (by her own admission) the main leader stood up and asked her “If we do that how will we make money?” You see, bankers make the bulk of their money by lending to persons they know will have difficulty repaying what is borrowed. They make the majority of their money off of late fees & penalties. So if prime lending is for the best most credit worthy borrowers (reduced rates). Sub prime is for the marginal more risky borrowers (higher rates). It has nothing to do with making money available to minorities. It hast to do with making money on the available minorities.

When a person is on the radio or television touting that they have the secrete answer remember this… there is no secrete of the rich, most people got rich in public. Its just the public was not paying attention.

There are still Programs that allow purchasers to put No-Money Down that will allow persons to purchase a home by borrowing 103% Loan-to-Value (LTV)

On the last post I talked about the balance sheet and the basic formula:

• Assets - Liabilities = Equity

This Program is Stupid… Let’s do the Math and put it back into the basic formula:

• Asset $100,000 Home
• Liability ($0.00 Down) $103,000 mortgage ($100,000 * 1.03%)
• Equity NEGATIVE EQUITY OF $3,000

Not to mention the interest on the mortgage. Have you ever heard of the term Up-side-down. That is it, in other words you owe more that the property is worth.

I heard of a Vacation Program…

I heard of vacation programs (time shares) that ask for $1,500 down and $250 per month to have the ability to vacation anywhere in the world that they have properties. These are spectacular resorts. It is being marketed to African-Americans via well known individuals and commercials. Sounds like a Wonderful Program… Now I don’t fault these individuals for doing the job they are paid for which is selling these to the masses. I do ask why there is not a contrasting view presented? (Oh, I forgot… I’m not famous and getting paid for the truth…)

Let’s do the Math…

If I put $1,500 down and $250 a month in my Financial Calculator for 30 years (the program says 50 years b/c you can will it to your kids…) at 12% that is $927,665. I don’t know of a vacation that is worth $927,665, Do you? This vacation program has stripped the wealth from the family that participates in this. Oh, by the way if you take it out to 50 years and will it to you kids as they suggest, that family just gave up $10, 351,960. That’s a 10 million dollar mistake…

STOP LOOKING FOR A PROGRAM!!!!!!!!!

Next: PT 3 – Protect your Parents & Grand Parents