I have recently read many articles addressing these types of loans and their contribution to the pending loom of increase in the foreclosure market place. These loans can be a disaster for a client that does not thoroughly understand the potential of the loan. Many clients I have spoken with that have these types of loans claim they were not aware of the adjustment phase of the loan and to what degree the loan parameters would change after the fixed rate period.

With most clients facing as much as a 2% increase in interest rate after the 2 year fixed rate period with additional increases occurring every 6 months until the cap is reached, this can be a recipe for disaster for a home owner if certain preventive actions are not taken.

My personal experience early on in my career was that new loan officers although they understand the rate will adjust, don’t fully understand the full implication of these loans to a new or first time home buyer. The lack of understanding the value of providing a long term plan for the homeowner or how to implement a long term plan is the biggest problem.

These loans by nature are not bad, what is bad is the lack of planning by both the loan officer and the client. If some cases clients just aren’t willing to take the necessary steps to assure that after the 2 year fixed period they have cured all of their credit problems. In other cases the lack of understanding or concern for the client by the loan officer in assisting the client by providing education or methods to resolve the credit issues after the loan closes (during the 2 year fixed period) is the other issue.

As a Certified Mortgage Planning Specialist and a Certified Credit Consultant I have always keyed in on this issues with my clients to try to make them understand the consequences of not addressing their credit issues during the 2 year fixed period of these loans. Most clients if made aware of the implications and were are offered solutions to help them get to the next level of loan by correcting their credit issues are willing to try, but their have been clients that simply refuse to take any action, but that is not the norm.

For the most part the focus for these clients needs to be on the credit. What can be done to improve the credit profile? This is where my role as a Certified Credit Consultant has helped immensely. For the last 8 years all of my clients that go into these types of loans are given an opportunity to enter into a credit repair/credit education program. The key here is AFTER THE LOAN HAS CLOSED. The process that I have used has been very successful with the majority of the clients. Most have been able to move to a conforming type loan and if not at least have the option of refinancing into another 2 year ARM; although this is not the preferred scenario.

Certainly credit repair and credit education that is not the cure all but in most cases is a good start. Some clients have had to get involved in some sort of debt negotiation or debt management program as well. By having the availability of these types of programs I have been able to add additional value for the client.

Along with the assisting the client with these types of programs, monitoring their progress is essential as well. The client most be held accountable for their progress or lack of. These types of programs will assure the client the best opportunity to succeed. This provides a win-win situation for all parties; the client is grateful for your genuine concern and continued commitment to assure their success as a home owner as well as opportunity to refinance them into a good loan after the 2 year period.

For more information on Credit Repair, Credit Education or Mortgage Planning, please contact;

Mark Bustamonte
Certified Mortgage Planning Specialist
Mortgage Sources Corp
www.mtgplanning.com
markb@mtgplanning.com

-or-

Certified Credit Consultant
United Credit Education Services
www.unitedcredited.com
mark@unitedcredited.com

866-840-2240 Toll Free

Key Words; bad credit, home loan, ARM, mortgage,credit education, credit repair