Up in ARMs over Mortgages

     Housing may be headed for a soft landing, but that’s just the Federal Reserve chairman’s opinion. The media, on the other hand, have scared up another “housing bubble” story: adjustable-rate mortgages (ARMs).

     Journalists have called ARMs a “nightmare” and blamed them for leaving homeowners “out in the cold.” The loans offer introductory rates as low as 1 percent, but can go up dramatically after that period ends. As many of the mortgages’ rates reset to higher payments, the threat of foreclosure has been portrayed as the new fear of suburbia. 

     “Call it the latest housing boom – foreclosed homes,” said Vicki Mabrey on ABC’s August 8 “Nightline.”

     It’s the latest in the media’s trend of negative economic news. Despite economists’ assurances that the housing market is evening out from record highs in recent years, many journalists still insist that housing shows signs of a dire downturn. ABC’s Cynthia McFadden said on the August 8 “Nightline” that “the slowing real estate market is putting the brakes on the economy as a whole.”

     Apparently Congress has been paying attention to the media’s warnings, because the Senate Banking Committee held the first of a set of hearings on the “housing bubble” on September 13, according to Reuters. The September 12 Reuters report said another hearing on “non-traditional mortgages” was tentatively scheduled for September 20. As the Business & Media Institute has documented, media fears of a catastrophic housing bust have not materialized, though predictions have abounded for the past several years.

Toxic Coverage

     The most exaggerated recent media portrayal was BusinessWeek’s September 11 edition with its cover titled: “How Toxic Is Your Mortgage?” Writer Mara Der Hovanesian claimed that “many brokers care more about commissions than customers” and described mortgage holders as “casualties.”

     That enraged Harry Dinham, president of the National Association of Mortgage Brokers (NAMB), who said data BusinessWeek attributed to NAMB was inaccurate. What’s more, he said his organization was contacted only about the fact that ended up wrong in the story – the reporter did not attempt to interview him or another representative, he said. The story said about 80 percent of “all mortgage originations” were coming from “unregulated mortgage brokers,” attributing that number to NAMB.

     Dinham said the percentage of loans through brokers is closer to 50 or 60 percent. About 12 to 15 percent of U.S. mortgage brokers are members of his organization.

     “We took exception to the fact that she said we weren’t a regulated body of people,” Dinham told the Business & Media Institute. “Everything that every other lender has to do, we have to do.”

     Dinham wrote a letter to the editor of BusinessWeek stating that “mortgage brokers are governed by a host of federal and state laws and regulations, and are licensed in all 50 states.”

     “Your portrayal of mortgage brokers as unscrupulous businesspeople is offensive,” Dinham wrote, noting that brokers rely on community contacts and repeat customers to make their livings – not an arrangement that lends itself well to cheating customers.

The Dreaded Words: Personal Responsibility

     Despite her nine-page indictment of the banking and mortgage industry, BusinessWeek’s Mara Der Hovanesian showed that not all mortgage buyers were completely in the dark.

     “The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk,” she wrote. “But others, caught up in real estate mania, ignored or failed to appreciate the risk.”

     She described one man as “stuck in a new mortgage that’s making him poorer by the month,” but admitted that “he didn’t read the fine print.” Another customer admitted, “You have to pay attention. We didn’t, and we’re really stuck here.”

     Still, the BusinessWeek writer declared, “[These mortgages] betray such a lack of due diligence on the part of lenders and borrowers that it raises questions of what other problems may be lurking. And most of the pain will be borne by ordinary people, not the lenders, brokers, or financiers who created the problem.”

     Dinham, the mortgage brokers’ association president, said “to my knowledge, there’s not a bounty or a bonus being paid” to brokers who push ARMs, contrary to BusinessWeek’s assertions.

     “We offer options. They choose. We never tell them, ‘This is what you should be doing,’” Dinham said.

     Network news featured some “ordinary people” who recognized they needed to act to get themselves out of a bad financial decision.

     “Marc Anderson is switching to a fixed-rate mortgage for his Phoenix home,” Anne Thompson reported on the August 2 “NBC Nightly News.” Anderson said: “I want something that I know is going to be there five years from now. I don’t want my interest rate or my payment to change in any way.”

     On the July 20 “Evening News,” CBS’s Sandra Hughes introduced another one who saw the writing on the wall: “Like so many who fueled the housing gold rush, Phillips financed her condo with an adjustable-rate mortgage. She wants to cash out before her payments inflate.”

Helpless Homeowners?

     The BusinessWeek piece said ARM holders couldn’t afford to refinance because of penalties and fees. However, network news shows have featured several financial advisers lately who have said otherwise.

     “You’ve got to lock in some certainty, and don’t get suckered into that ARM thinking that rates are going down,” said CBS financial advisor Ray Martin of Money Matters on the August 12 “Saturday Early Show.” On the subject of refinancing and closing costs, he added: “But that’s a story of pay a little now to save a lot later, ’cause an ARM could raise your payments 4, 5, $8,000 a year more for the rest of your mortgage.”

     Martin said some banks have even been calling customers and sending letters out. “A lot of lenders who service customers’ adjustable-rate mortgages are actually calling their customers and saying, ‘Hey, we could lock you in now and – at ¼, 1/8 of a point higher for five years instead.’”

     The September 5 “Good Morning America” featured ABC financial contributor Mellody Hobson giving the banks’ point of view. “Keep in mind, just like a foreclosure is a black mark on your credit, the foreclosure is a black mark on the balance sheet of your bank or mortgage company,” Hobson said. “They don’t want to foreclose on you. So everything is negotiable. That is incredibly important to remember.”

     Negotiating isn’t something homeowners think of often, said one guest on the August 8 “Evening News.” CBS’s Kelly Cobiella interviewed Ken Wade, CEO of Neighborworks America, a nonprofit that “works with banks to help people avoid foreclosure.” Cobiella said “surprisingly, most homeowners don’t ask for help.”

     “Our data suggests that 40 to 50 percent of all the people that go to foreclosure never have any contact with their lender,” Wade said. Cobiella added: “That’s why they say the most important step is to talk to the bank. From there, solutions could include suspending payments, restructuring the loan, getting a new loan or even giving back the home to avoid a black mark on your credit.” She then gave an example of a woman who got credit counseling services and worked out a suspension of payments with her lender while she looked for a job.