We've got a reader
... and that is a good thing. I have been selling Charleston South Carolina real estate for a number of years and typically at a real estate closing, there isn't much time to read very many of the hundreds of pages of documents a buyer is typically asked to sign.
In Charleston, real estate closings are handled by attorneys and it has been very common for the most important aspects of the paperwork to more carefully reviewed and much of the tedious boilerplate to be glossed over. Items like the HUD statement detailing all funds in the transaction need to be carefully scrutinized for any errors. It is vitally important to review the note to insure that the interest rate is correct as quoted to you by the lender. You should check and make sure that the loan is indeed the fixed rate loan or the adjustable rate loan you applied for and that there are no unexpected surprises included such as any prepayment penalties. If you are taking an adjustable rate mortgage, be certain that the rate resets are in line with when they can begin, how much they can reset in any given year and what the maximum interest rate is over the life of the loan.
As to the mortgage itself, there has never been and still isn't much reason to read it. As many attorneys say, what the 18 pages basically say is that "if you pay, you stay, if you don't, you won't." Some continue with this thought, "if you plan to make your payments, there isn't any reason to read it, if you don't make the payments, that might be a good time to pull it out and review what will happen."
With all the recent news about the mortgage mess, it seems that borrowers are being a bit more careful at the closing table than they were previously and as I said previously, that's a good thing. The attorneys have had to point out where in the paperwork it states that there is no prepayment penalty. Lines including undecipherable phrases have had to be better explained to the buyer's satisfaction. A "seemingly unimportant" page that might have been previously signed or initialed is now being more carefully scrutinized for its meaning and why it was included in the package.
When I hear that some borrowers didn't know what they were signing or were never told that their interest rate would reset higher or that there were prepayment penalties involved with their loan, I think that is just an excuse. I believe that right or wrong, they just wanted their part of the American Dream of homeownership.
I'm sure there was some predatory lending during the real estate boom and I am just as certain that many people just figured that only good things could and would result from their stretching their budget to buy a house. A few buyers stretched the truth about their income, jobs, debt, etc., and because some mortgage companies weren't all that interested in documentation, loans that shouldn't have been were in fact made in some cases.
Even so, I think that many if not most of the buyers who are finding themselves in trouble with their mortgage payments knew what they were signing and the consequences of their actions. Some may have chosen to ignore potential outcomes but in all likelihood, it was explained in black and white on paper that they signed.
They could have said, wait a second, what does this mean when it says that my payment for a $500,000 house will be only $998 per month for the first two years but after 2 years, I will owe $525,000 because of this negative amortization loan that I am signing for and that the interest rate will be higher and the new payment will then be $4000 per month, I could never afford that high a house payment.
Having said all that, I hope that lenders can work out some restructured loans with borrowers who have gotten in trouble keeping up with their payments from some of the more exotic loans that were offered in previous years.
All in all, it's better to be a reader at a real estate closing than that famous phrase, "we've got a bleeder" from the television show ER. It's all about responsibility, know what you are signing because your signature is your commitment to living up to your end of the agreement.