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FDIC As Tipster: Negotiating A Good Mortgage

When I came across this information by the FDIC [1], it brought to mind something I thought of while reading the review of Steve Martin’s new book “Born Standing Up [2]” I saw in Time Out New York Magazine [3]yesterday.

I remember one of my favorite Martin routines went something like:

>Q: How to have a million dollars and never pay taxes…

>A: First, get a millions dollars…then…

In other words, their advice is probably too late for many, although the FDIC probably means well with their publication.

The FDIC Issues Tips on Shopping for and Negotiating a Good Mortgage in the New, Tougher Climate for Loans [1]:

  • Try to raise your credit score in the months before you apply for a mortgage, such as by paying off much or all of what you owe on credit cards.
  • Contact several lenders, let them know you are comparison shopping, and then try to negotiate the best deal.
  • Compare fixed-rate and adjustable-rate mortgages (ARMs), even if the latter carries a lower initial interest rate, because a fixed-rate loan may be cheaper in the long run.
  • Be wary of a loan with payments that can increase substantially, such as mortgages with low monthly payments in the early years in exchange for the deferred repayment of principal and/or interest.
  • And, watch out for unfair and deceptive sales practices that lure people into costly or inappropriate loans.

Definitely wild and crazy advice.

Of course, it might make more sense to seek a loan modification [4].

Sheila Bair, chair of the FDIC has a constructive solution for borrowers in trouble:

>She’s proposing that the banks automatically modify every subprime loan if the borrower lives in the house and has been paying on time. Payments would continue at the starter rate, without a step-up. That could prevent foreclosure on about 1 million loans, Bair says, freeing overtaxed bank staffs to focus on the borrower’s default.

Loan modifications could be a good halfway point for many to avoid foreclosures. Lenders learned that it was often cheaper to renegotiate than to bear the expenses associated with foreclosure.