But on the other hand, experience is the best teacher. And as I lay out below, as a first time homebuyer several years ago, I had no objective advice as I considered my mortgage options (excluding of course my a****** mortgage broker). To my regret. So perhaps a requirement that a FIRST TIME home buyer use such an advisor would make sense.

When I bought my home afew years back I was told by my broker that I’d have a 7 year ARM. I had never heard of an ARM. Like you, my parents had a ‘mortgage’. It was 30 years and it was from the local bank. We never refinanced. You got a new mortgage when you got a new home. Done.

Well, I told my broker I didn’t want that. I wanted a 30 year fixed. But I was told by him that the bank would NOT give me such terms (I was only putting down 5%). I was frustrated with being priced out of the home ownership dream for 15 years of my adult working life. I found myself in my mid-thirties, in a good job, and decided to take the leap.

In hindsight, I was a fool to go with that plan. I should have passed on the property (I wonder if suddenly a 30 year mortgage would have ‘appeared’). While I had plenty of income, no debt at the time, and took out a mortgage for $200K less than what the broker said I qualified for, my circumstances have changed. Specifically, I find myself laidoff now like so many others.

I also ended up with a HELOC on my property (Home Equity Line of Credit). This is a subject we’ve all heard so much about as part of America’s demise. Folks ‘seeking out’ and tapping into this line and getting themselves into trouble. Irresponsible homeowners using these LOCs to buy boats, vacations, etc. Turning unsecured debt (material goods from the local store) into secured debt (collateralized lending – a mortgage).

What I find interesting is the other side of the HELOC story. I didn’t WANT a HELOC, but my broker told me it was the only way I could get the mortgage. “They won’t give you the mortgage without the HELOC.” Do you see a trend here? I have never drawn on the line and had been paying it off aggressively while employed. So it is really less of an issue. But can you imagine if I had not?

That said, shame on me for trusting a mortgage broker. You wouldn’t blindly trust a car salesman. Nor an insurance salesman. Why would you trust a mortgage broker? Clearly though, I did. The fact that I could make the payments really is second in importance to the fact I did not stop to understand the “why” of these instruments (“why” an ARM, why “must” I go with an LOC, etc.)

My only final comment is that there is a very subtle level of predatory lending out there. It isn’t always as obvious as loans to folks who can’t handle the payments. It is as simple as using exotic instruments to lend when really the risk associated with the individual in no way warrants it (my monthly debt to income ratio at the time was abit under 20%, my FICO score was perfect). Wish I had read this post years ago. Keep on writing and thanks!

As for the whole sub-prime problem – Buyers had big eyes and jumped into houses too soon while lenders got greedy and went with the quick money, giving out too much on loans.