As the subprime crisis deepens and delinquencies and foreclosure filings increase, the lending industry has revved up its efforts find ways to keep the situation from worsening and to prevent it from happening again.
One solution: education.
For example, the Mortgage Bankers Association "has been very active in the area of financial education, working to make the home buying process as transparent as possible," said chairman John M. Robbins, in announcing the latest efforts -- The Simple Facts and The Simple Calculator.
"Helping borrowers understand and evaluate different mortgage choices is a role that our industry must play so that our customers receive the best mortgage information possible to make informed decisions," he said.
The MBA insists that it is committed to helping first- time buyers learn about the mortgage process and is also working to keep current homeowners in their homes.
The lenders' association has enhanced its bilingual consumer education website, HomeLoanLearningCenter.com , with a guide and an accompanying online calculator to help demystify the mortgage process.
The Simple Facts provides information that helps prospective buyers identify the pros and cons of each type of mortgage and choose the best product for their own situation.
One example of the educational offering is titled, "Someone Wants to Give You Money. Help Them," designed to show the buyer what he or she will need to apply for a mortgage:
Provide all your W-2 forms for the past two years and your two most recent pay stubs. (Some lenders may want to see your entire tax return for the past two years.) If you are self-employed, be prepared to provide complete tax returns for the last two years, along with a profit-and-loss statement for the current year.
Don't forget proof of other sources of income such as rental income, social security or disability payments, alimony, child support, etc. Proof of these could be canceled checks, copies of leases, divorce decrees, certification of benefits or other documents.
Finally, if there are any gaps in your employment over the last two years for whatever reasons (illness, layoff and so on) provide a brief written explanation.
Another example, and the sign of the times, is, "How to Live with Your Mortgage, Not for It:"
"The expense of owning a home goes beyond a monthly mortgage and utility payments. Home buyers with minimal cash reserves can often find themselves in financial difficulties," the brochure states, and lists a variety of things that can go wrong -- a furnace needing replacement -- that can stretch the finances of especially first-time buyers who might have been lured into signing up for a larger mortgage than they could readily afford.
Although many consumer advocates maintain that fraud has been a major player in today's troubled mortgage market, the vast majority of borrowers who are behind in payments or have gone as far as facing foreclosure often found so-called "exotic" adjustable-rate loans the only way they could buy a house when median prices skyrocketed.
The problem in many markets is that those same houses have declined in value and are worth less than the mortgages these borrowers took out, and, coupled with tighter lending standards in the wake of the subprime crisis, are unable to refinance to safety.
While the rule of thumb that housing costs should not exceed one third of an individual's annual income, a recent survey by apartments.com found that more than 60 percent of renters responded that they spent more than the recommended percentage on rent.
In fact, 20 percent of survey respondents spending more than half of their annual salary on rent.
The other part of the MBA learning center is "the Simple Calculator," a tool that estimates the payments for each product, not just today but throughout the mortgage, and compares payments under different types of loans.
Mortgage Bankers calls HomeLoanLearningCenter.com its "unbiased" consumer-education information website.
"Clear and understandable information helps consumers become comfortable taking on a mortgage, which is a long-term responsibility," said David Lowman, chief executive officer of Chase Home Lending, the mortgage unit of JPMorgan Chase.
Fannie Mae's chief executive officer Daniel H. Mudd called the MBA website "an important project" to "advance the cause of sound and affordable mortgage lending."
"We at Fannie Mae have long worked for and advocated clear, concise disclosure of mortgage terms to protect borrowers," Mudd said. "Information and education are key parts of providing consumers with a fair path to homeownership."
Freddie Mac's chairman and chief executive officer, Dick Syron, said the site would "help consumers make more informed decisions about their most important investment -- their home."
