Saturday, June 11, 2011

The Year's First Predatory Loan Offer

When the housing bubble finally burst (took long enough didn't it?) all of the predatory loan offers disappeared from my mailbox.  It was surprisingly sudden.  It's like they all went off to the Cayman Islands to open casinos or something.

Maybe it's a way of measuring that the market is recovering some, or that we didn't punish the perpetrators enough, but one substandard loan-sharky offer has finally reappeared in the mailbox.

Since this is more about how to read Fine Print that to pick on a particular company (even though they really do deserve it) I've taken the name out of the images.

So after some introductory statements trying to make things look legit which is just quoting stuff off of public record here is the body of the letter:

It clearly says "Lock in a fixed rate" and even uses the S-word: security.
And goes on to say that they have an A rating with the BBB (A+ being the best).  Sadly this is true.

Now (and this is the important part) skip to the bottom.  They have to say (in the finest print possible) what they are actually talking about:

(Sorry for the too wide image - I wanted it to be readable)

"This is an offer for s new 5 year adjustable rate mortage." NOT a fixed rate.
and (OMG) "with an interest-only payment"

ARMs are not horrible (more info it's fixed for 5 years (which is why they get to imply that it's a fixed rate loan), but after 5 years the rate then adjusts ever year.  If you're going to sell you house in under 10 years and if (big if) your house's value hasn't been over-inflated and is about to become unsellable for at least what you paid for it, then an ARM is not too awful, but what makes this particular loan fall into the Run Away category is the "interest-only."  Your payments are doing nothing, but making the lender rich.  And you have probably paid a fee to them as well for the privilege.

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