I recently watched and listened to President Bush’s August 31^st Rose Garden address on the topic of financial problems involving mortgage lending and the prospect of looming foreclosures. I would encourage you to watch the entire ten minute address at whitehouse.gov. (It was also neat to hear the cicadas in the Rose Garden attempt to drown him out. You just can’t make cicadas pay attention.) The gist of the President’s message was that the government cannot and should not attempt any sort of bail out for distressed homeowners or mortgage lenders. I heartily agree. For capitalism to work, government should steer well clear.

That’s not to say that I don’t have empathy for struggling homeowners or mortgage lenders, because I are one. Pure greed and not the lack of government regulation caused the problem. Excess demand for the high yields on pools of sub-prime loans caused money to flow in from across the country and from overseas to bid on limited quantities of product. Wall Street demanded more product and mortgage lenders did their best to meet the demand. Underwriting guidelines were relaxed and mortgages were made to marginal applicants.

Easy credit meant that everyone could apply for a home loan and chances were they would be approved on some program. It was a heady time. Now the adjustable rate loans that many borrowers were placed in are resetting and we’re all left with a credit hangover. Who’s to blame? There’s enough blame to go around. The homeowner should be blamed for buying a home they couldn’t afford and using an interest only adjustable rate loan to make their near term payments bearable while ignoring what might happen down the line.

Internet mortgage lenders are to be blamed for approving applicants at the lowest possible introductory payment levels without taking into consideration what the homeowner might do when their payments escalated. And did these Internet lenders really care about their customers? Heck, no. They didn’t lose any sleep over it. They wouldn’t have to bump into them in the local grocery store as you would with a mortgage lender who actually lives in your community. Buyers and lenders alike seemed to get caught up in all the irrational exuberance floating around. There are many morals to be learned form this story.

One part of the President’s proposal is that lenders work with homeowners to recast their mortgages to allow for payments that the homeowner can afford. That’s a two way street. Homeowners need to help themselves in that process by being proactive in the process and contact their lenders at the first inkling of difficulty. Lenders do not want to take a property back. Nationwide, the numbers show that lenders lose an average of $40,000 every time a foreclosure occurs.

Homeowners should also help themselves by keeping their personal finances in order. They can help their chances of refinancing into better programs by improving their credit scores. Don’t max out your credit cards, don’t take on new debt, increase your savings and make your current payments on time.

The President also mentioned FHA reform. In 2006, the House overwhelmingly passed legislation, but the Senate failed to act. This year, the House has again passed FHA legislation and now we’re again waiting on the Senate. (Call or write Saxby and Johnny! Please!) FHA reform would allow what was once the premier player in the low to moderate income arena to get back into the game. FHA could help many existing homeowners refinance into low interest, fixed rate mortgages and would provide a great alternative to sub-prime loans for new home purchasers. Even without the much needed congressional reform, FHA is soon to launch a new program called FHA-Secure for the express purpose of refinancing the mortgages of struggling homeowners.

Owning a home has always been central to the American dream. It still is. Call a local member of the Mortgage Bankers Association of Middle Georgia. They live in your hometown. You can find one at mbag.org.

David Griffin has been financing homes in Macon, Warner Robins and all of Middle Georgia since 1983. He is a two-time past president of the Mortgage Bankers Association of Middle Georgia. For an archive of past articles visit www.davidjgriffin.com. (9/6/07)