The Truth About Mortgage Rate Buydowns

I read an article in USA TODAY about mortgage rate buydowns. It was authored by Bailey Schultz and it is titled: Mortgage rate buydowns are on the rise as homebuyers cope with high interest rates. Here is a link to the article, in case you'd like to read it for reference. https://www.usatoday.com/story/money/personalfinance/real-estate/2023/01/22/mortgage-rate-buydown-lower-interest-rates/11077611002/

You can read Bailey's article to get a better understanding of what a Mortgage Rate Buydown is, but to me, this sounds an awful lot like predatory lending which set America up for the biggest economic catastrophe since, well, nobody could quite remember.

Let's recap.

It was early 2000, and everything seemed to be going according to plan. Life was good, making money was good, drugs were the nations biggest worries. The Y2K Bug never came to fruition, the world did not collapse, and everyone breathed easy. George W. Bush became president, and everyone was fat dumb and happy. Then we had 9/11 happen, and that started a hunt for weapons of mass destruction and all things un-American... like regulations and such.

Now, a lot of people think that President Bush de-regulated the banking industry. It was actually quite the opposite. He pushed for stricter regulations, BUT the government became lax in their oversight of such financial institutions, and instead, focused on other things like... Saddam Hussein and Osama Bin Laden.

So, for those eight years the Bush was president, Big Banks went to town, offering "creative" options to home buyers. Remember that word. "CREATIVE".

One of the biggest ways to get creative, without changing the bottom line (how much you're profiting off the sucker taking the deal) is to change the terms to make it look amicable. If the standard interest rate on a loan is, say, 10%... then offer something like 7% for the first year, and 10% for the second, and then only 13% for the rest of the loan. I mean, it's 3% off and then 3% added on in the third year. Seems legit, right? To some of these first time home buyers, kids right out of high school or college, kids who lacked the mental capacity to do quick calculations in their head, or even understand basic math at all, it was a disaster.

Don't get me started on how the government cons us all. I wont go into it very far, but here it is. 1.) Make sure kids get passed through grade after grade, regardless of whether they can make it or not, and call it "no child left behind." 2.) Penalize teachers and schools for malnourished kids with no home moral values, for not being able to concentrate or retain information. 3.) PACK classrooms to three times the legal limit, penalize schools more, but offer no quality of life pay for teachers. Turn schools into economic prisons for 90% of America. 4.) Get as many uneducated workers into the economy as quickly as possible, and ensure that their level of education is minimal. Make sure 90% do not go to college, and enter society working menial lowest paying jobs. 5.) Make sure, no matter what, that those who lack an education, feel that it is their own personal fault, for not learning more, even though, as a minor, they are not responsible. 6.) Keep everyone feeling like they are powerless to do antyhign else. Bash homeschooling. Bash other forms of learning as unorthodox or cultist. Make sure to penalize everyone who does not allow their children to become the uneducated masses that the government is relying on for minimum wage jobs and mindless spending.

And now, we have these same heavy spenders, with no hope of ever owning a home, with a delicious carrot dangled in front of their noses. It comes with a pipedream tag-line.

NOW, EVEN YOU, CAN OWN A PART OF THE AMERICAN DREAM!

Banks used every trick in the book, to get uneducated, unqualified, first time home buyers, to purchase a house. I'll give you my own personal experience because, I was part of this. And at the same time, I wasn't.

Fresh out of the United States Military, and my time spent onboard the U.S. Navy. U.S.S. Anzio CG-68, out of Norfolk, Virginia, I was eager to settle down, start my family and get on with life. I had two little babies and life was a struggle, but my wife and I, our Nuclear family of four, we were making it. My dreams of working in the government sector and retiring at the age of 38 were shattered when the United States Postal Service told me they had a hiring freeze, just long enough for my time in service to no longer count towards retirement with the USPS.

Regardless, I went to work when they did hire me, and then my dreams were shattered again, when I found that racism and nepotism are more rampant within the USPS than any other job I had worked to that time. I ended up leaving the USPS and worked odd jobs for a number of years before realizing the only way I was going to make any decent money, was working for myself.

It was hard. It was a constant struggle in the beginning. But after a few long hard years, I got my first bonus check from being a time share broker... and because my first bonus check did not come for three years, it was three years worth the bonuses.... $30,000.00 + I choked. I didn't think it was real! I... had no idea. I didn't even know it was coming!

Well, young and dumb, I did what everyone else does when they get that kind of money. I went right out and spent it. Every dime. I bought a new mini-van, I bought a new living room set, I bought this and that, and soon the money was gone. -Oh, oops. Nope. I didn't do that. See, I've always been the odd duck. I did go out and buy a second vehicle. A Ford Freestar Mini-van, but I got it with a nice down payment and 0% APR, so there was no need for me to buy it outright. I was also at the end of my rental contract which, being poor, had a clause that said, if I decided to stop renting and go buy a home, the management company would cut me a check for 2.5% of the rent I had paid over the course of my rental history. Now, that's not much, but it was a deal considering my rent was $800 a month for the past 7 years...

So when I started lookign for a house, I found a mortgage broker by chance. He set me up with a "value" and told me to go find a house and we'd go from there. It was almost a spur of the moment whirlwind kind of thing, and for six weeks, one or two days a week, my wife and I went house hunting with a realtor. By the end of week six, we'd found the house we wanted, and paid the realtor the $1000.00 deposit to secure the home while the paperwork was being put through.

Then we had to fight with the rental company, while preparing to move out, because they said they'd never heard of the clause I was speaking of, and nobody had ever used it. Well, being the pack-rat that I am, I pulled out my copy, which the front office insisted they needed in order to verfy it. I handed it over, and they "sent" it to corporate who promptly lost it... So I provided them with another copy. And another. Until they realized I had the original, and I was giving them certified copies each time, and I would NEVER give them the original, unless it was coming from a lawyer in court. Funny thing, they cut me a check and sent me on my merry way.

Armed with a check and a chip on my shoulder, I spoke with my mortgage broker and we got to work. As a "time share" broker, I masically got paid comission only. There was no contract. There were very few rules. Orange Lake Country Club got sued over their insistence that their employees were contractors, and Westgate was much more flexible when it came to what you wore and where you worked, even though they provided everything, right down to the forms you had customers fill out, but that's a story for another time. The point is, my mortgage was to be one that was frequently used by individuals at the time. It's called a "No Doc - Stated Loan".

Basically, I told the mortgage broker how much I made, and how much I could pay as a down payment. That was it. My word, was my source of information. Now, in retrospect, this is also the kind of loan that Drug Dealers used to get mortgages. People who had a lot of cash and no docs to show how they got it, BUT, they paid their taxes... those were the people that the banking/housing industry loved, and they loved me too.

It was 2004... The house I was buying was valued at $164,000, and I was ready to buy. The mortgage broker came to me, last minute, and said, "I'm sorry. The bank wants something to show how much money you make. Without some sort of documentation, we can't get you a mortgage." Saddened, but at the same time, pissed off because, at that point, we'd wasted so much time... We found the house in March, planned to move in in June, and it was Late September by then, and nobody seemed to think this was an urgent matter but me and my wife! So, I told the Mortgage Broker to cancel it.

Yes. He actually called me, gave me an ultimatum, and I called his bluff. He said I'd loose the $1000 deposit I paid, and I said, "fine." I hung up. Within 20 minutes he had me back on the phone, telling me he "might" be able to work something out. An hour later, he had me scheduled to sign the paperwork on November 19th, 2004.

Well, again and again, they moved things, they screwed things up, but eventually, we got around to a different date and a different meeting and then we sat down with the realtor, the bank, the title company and we got to signing. I had "heard" that the APR would be a bit higher than normal, but because I was convinced I would be paying off my house early, I had no problem with it. I would get two mortgages to eliminate the need for Mortgage Insurance. an 80/20 split of equity. The loan for the 20% equity would be a fixed rate at 10.75% APR. Now, a lot of you are going to choke at that, but me, I was fine with it. The 80% equity loan would be at a super low rate of just 2.75%. They called it a "Fixed rate, adjustable, loan".

Now, these sorts of loans are what cause the economic housing bubble to burst in 2008. People were paying 2.75% for the first year, or two or three years, and then their mortgages went "adjustable" or better known in my circles as "Armageddon" and people went from paying $400 a month for their brand new homes, to paying over $2000 a month. Some people tried to keep paying. Most, said fuck it. They made preparations to move out, and the government and the banks did NOTHING to try and fix it. NOTHING. Their answer was, foreclosure. Take the houses from people, fuck them over, and then they could sell the houses to the next sucker in line!

The problem was; 50% of new homes were done like this. The foreclosures had to go through the courts. Evictions too. The courts became backlogged for months, or even YEARS. People who said "fuck it" and stopped paying their mortgages, sat in their new houses for months, or years, without paying a dime. The banks realized that, while they may have bent a few hundred thousand people over a barrel and fucked them for every cent they could get, MILLIONS were now fucking them right back.

Eventually, banks tried to do something to alleviate the issues. The government took action. Banks tried to renegotiate mortgages, get lowered rates, put people back in their homes, or just get them to start paying again, but the damage was done. The government ended up bailing a lot of them out, to the tune of BILLIONS of dollars, and this was all done by the American Tax payers. We paid, for the banks predatory actions, and we continue to pay.

Back to my experience. I read my mortgage papers. It took 8 hours. I made them reprint the entire thing 4 times. Every time I saw they fucked something up, they were forcedto fix it. First issue was, the monthly payment did not reflect the APR. I noticed it right away. My mind, is not a calculator. I cannot produce exact numbers. But when I look at something, I can tell, if the numbers do not look right. I had them fix it, and that was an instant savings for me of about $150.00 a month. The second mortgage had my name spelled wrong. The first had the wrong APR calculations for year 2. The last thing, the $1000.00 deposit I paid to my realtor, was nowhere to be found. She even tried to tell them, in hushed side conversation, that she "had" received a deposit, but that they could take care of that afterward, but that was bullshit. I made sure they wrote it in, took it right off the principle, and that adjusted every calculation, and the entire thing needed to be re-printed again.

In the end, I was happy, they were happy, and away we went. Fat, dumb, happy...

Year 3, my fixed rate becomes adjustable. Lucky for me, I read the docs. The highest my rate could go up by, in any calendar year, was 2.5%, and it went up by NINE percent. I was on the phone with them RIGHT THEN, making them fix it, else I would have a lawyer contact them. Funny thing, they fixed it. And it went up. It went up 2.5%. The next year, they did it again, and again I was on the phone having them fix it. 2008, the rate went up again. This time, I had to call them because, even though they'd raised the rate by only 2.5% that year, there was another clause in my mortgage, one I remembered and exercised. The MAXIMUM that my adjustable could go to, was 9.5%, and they were trying to put me up over 10%.

Now, I knew fully well what I was getting into. I did. From year one, I was paying DOUBLE what I owed each month. Any my mortgage company was trying to fuck me every way they could. Any overage, was considered an advance payment towards the next months payment. They REFUSED to apply it to the principle, unless I specifically included a note to apply it to the principle. Well, then one month, I included the note, and they put the entire payment towards the principle, and because I failed to pay the interest, they counted the payment LATE, charged me a LATE FEE, and then penalty fees on that, until the next month, and when I paid my next month's payment, it was short. Another late fee, more fees, more penalties. In three months I paid DOUBLE my required amount, and was a month behind, according to the bank.

When another bank bought my mortgages from Indy-Mac, I thanked god. When NationStar bought them again, I thanked god yet again. But, Nationstar couldn't buy both mortgages, and the second company who owned my little 20% equity loan at 10.75% fixed rate, they decided to pull a fast one, November of 2019, right when the Pandemic was hitting. They decided to exercise a clause in the loan which required me to immediately re-finance the loan with another lender, or pay them in full. No biggie, right?

Well, another clause in the loan was that, I could never re-finance the loan for LESS than what the total of the loan was, interest included. I couldn;t refinance it. I could pay it off, but for that, I would need to find a way to get a "personal" loan for $20,000, and then use it to pay off the second mortgage. Lucky for me, I'm good at saving money, and I was able to bring it together and get it done. I paid them off with a note that said, Thanks for fucking me over, and FUCK YOU. Gotta love America.

I received a check back from that mortgage company, for my overpayment, because the bank refuses to give me a good "total payoff number" and so I grossly overpaid them, to get the job done. But the headaches weren't done yet. Later that year, when I received a check from my insurance to replace my roof after a hurricane came through and decimated a large portion of Florida, both mortgage companies had to sign off, because, EVEN A YEAR AFTER PAYING THEM OFF, I still had not received a finalization of that mortgage note. A "Paid OFF" notice, per se. Well, The insurance company sent the check to the Mortgage company, and guess what? THEY CASHED IT.

I owed them NOTHING. And because I owed them nothing, and the check was made out to them, and my other mortgage company, and ME LAST, they cashed it. They just thought they were going to STEAL the money. Well, my lawyer sent them a nice little letter, and soon enough, they cut a check to my other mortgage company, excluding me. We had to get a second check, and then a third before they decided to do it right.

Now, I didn't mention this but, in 2008, when the housing bubble burst, the shit hit the fan. 2009, my adjustable rate mortgage dropped to 5%, and then in 2010, 2.25%. 2011, it was 0.75%... the lowest it could possibly go. It was great. But I'd learned my lessons from dealing with other bullshit, even though I hadn't had the bastards try to foreclose on my home over the 20% equity loan, just yet.

When the timing seemed right, I refinanced the 80% equity loan because, I couldn't wrap both into one, and for the life of me, nobody could tell me why... I would find out about that clause in 2019... but back then, in 2015, I was taking what I could get. I refinanced, got a fixed rate loan, and even though I had to start off back at 30 years for paying it off, It was much lower, and I wouldn't have to worry about it going up from there.

Now, in my mind, I did right. I wasn't necessarily a victim, but that was more of a result of my constant need to have them fix the mortgage, and those who wrote it, trying to get me to agree to something that was not right. Had I just signed off in the beginning, I would have paid an extra 1.5% for the life of the loan, lost my $1000 deposit, lost my check from the apartment complex, and had the amount the principle was reduce by my down payment, reduced by the wrong amount. We're talking thousands or tens of thousands of dollars in the banks pocket, for free. But, I never had to file for bankruptcy, I never actually missed a payment, I got my late fees and late notices taken off when I proved I had over payed my account, and all of that, and I never got foreclosed on. But millions of people did.

Now recently, there has been a lot of big-bank-fuckery going on. Banks and investment companies buying up houses as quickly as they can, so they can charge INSANE amounts for rent, because during the pandemic, people who lost their jobs, or couldn't find work, didn't pay their rent. The government was just fine putting a freeze on evictions, but did nothing to alleviate the situation. If you have a nation that cannot pay rent, then you need to provide a quick and easy way to alleviate this. It could have been a government sponsored short term loan at 0%, paid directly to landlords for back rent. It would have needed less certification than the PPP loans, and would have provided people who were late on their rent, an easy long terms way to repay the rent they owed, while giving the landlords what they needed to stay whole. But, the government is not there to save the people. They are just there to RULE. Oh, sorry. That's not right either! But, well, you know. They suck.

And now, we have another problem. SUPER HIGH home prices. SUPER HIGH rent prices. You think WOOD got expensive because trees started charging more to be chopped down? Fuck no. Wood got expensive so that builders and contractors could charge more! If you got Covid money, everyone that CAN take it from you, WILL take it from you. And now, the money is gone. And now, we have a problem... but do we really? Really?

My house is now valued at $350,000.00 I'm sitting happy. I might get $330G for it. I'm not selling. And next month, when all those banks and investment firms realize that the number of people needing houses or a place to rent, already have a house or a place to rent, they're going to start cutting costs. BUT, LOOSING MONEY is not part of their equation! So they're doing that Mortgage Rate Buy-Down thing, which is just ANOTHER form of predatory lending.

The current rate is 6%+ for Mortgage Loans? Okay, so this is CREATIVITY, right? Banks are now So SUPER CREATIVE.... they'll let you get that house, RIGHT NOW, while the price are still SUPER HIGH, and they know you can't afford it, so they're going to give you that house, and loan, at a discount off the INTEREST. They'll make LESS money off of you now, for a short time, just to get you into the house. 3% OFF the first year, 2% OFF the second year, and 1% off the third year. It's THE SAME GOD DAMN THING AS AN ADJUSTABLE RATE LOAN! You'll pay 3%+ INTEREST the first year, 4%+ the next, and 5%+ the third year. Year four, you're at 6%+... and the price of that house you bought at the PEAK, will still be SUPER HIGH, you're house will decrease in value as the market shifts to stagnation, and you'll be FUCKED AGAIN.

We're all going to be fucked anyways. Big banks and investment firms bought a majority of these houses, driving prices up, driving rent up, taking money from as many people as they could, hand over fist. Now, they're going to try and entice people who can't afford the menial 6% APR on their loan, to buy a house, and trick them into thinking they'll be able to afford the higher interest, down the road. That whole big 1-2, maybe three years later. How many times have you gotten a 1% pay raise each year, three years in a row? Apparently, the banks think this happens to everyone, especially the people making the least amount of money who can't afford a 6% loan right now...

And when the price of houses drops through the floor... when big banks and investment firms with hundreds of thousands of homes on the books, and no rent coming in, need to offload those houses.... you think they're going to sell them cheap? You think they're going to LOOSE MONEY???? Fuck No. They'll run that shit into the ground and then ask the government to bail them out again. "OH PLEASE Mr. President! Please Congressmen! Bail us out! We took so much in bonuses and pay raises, we can't POSSIBLY take a loss, or we'll go out of business, and then... then who will collect the mortgages on all those houses that people ARE paying on? And, more importantly, WHO WILL CONTRIBUTE TO YOUR RE-ELECTION CAMPAIGN!!!!? And, we'll all be fucked again.

The banks will get their bailouts, They'll offload hundred of thousands of houses that have sat, vacant, and those houses will go to auction where the RICH will snag them at pennies on the dollar, and then offer them at dirt cheap rent, enticing people to abandon the houses they paid decent money on, and decent rent, to small independent landlords, and they'll fuck us all again.

Now, I hate sounding like a Negative Nelly, the ultimate Nay-Sayer, so I'll just give you this. I wish, for once, that the government would take stand against big business fucking over America for profit. Hold them PERSONALLY ACCOUNTABLE. They want the same freedoms and benefits like real living breathing human beings, then they can get fucked too! When they start complaining, saying they don't have the funds to do business, FUCK THEM! Let them go bankrupt! The government should call in loans on banks that perform these predatory actions, and seize the homes and properties bought, and auction them off, take the proceeds back for the American Tax payers! If the bank survives, fine. Good for them. If they don't, THEY DON'T. If accounts are FDIC Insured, then seize the accounts, instantly transfer them and the funds to other financial institutions that did not conduct themselves in these predatory lending actions, and continue doing the work for the American PEOPLE, and not the BIG BANKS and the EXECUTIVES CONTRIBUTING TO POLITICAL CAMPAIGNS!

The entire nation has become the feeding ground for big corporations. Price of Eggs goes from $1 a dozen to $8??? Because of what? Bird Flu? Gimme a fucking break. #1, Bird Flu does not infect eggs. It is not a blood borne pathogen. So why are eggs so expensive? The answer is simple; POLITICIANS and REGULATIONS. They say, if your birds have bird-flu, then KILL THE FLOCK. Start over with chicks... which come from eggs, which now, cannot be laid... Fucking idiots if you ask me. What they should have done is, separate the sick birds from the healthy ones, humanely cull those who cannot survive, leave it to the FARMERS to make good decisions based on experience, and keep the eggs going. But government support of super-farms controlled by corporations, have eliminated many of the small independent farmers, and have allowed these HUGE disrusptions to our food chain. In a sense, we HAVE put all out eggs in one basket, and we just threw it into rush our traffic without a single shred of common sense or intelligence.