Mortgage companies and lending institutions don't necessarily have your best interest in mind when it comes to determining what you can be approved for. Many homeowners find themselves with a mortgage payment too high to manage their budget sensibly. This is due to the fact that most lenders will approve a loan with a debt to income ratio that is too high for many homeowners.
Unfortunately, with the adjustable rate mortgages that strategy proves even worse once the rates go up and the payment obligations soar. If mortgage companies did not approve loans based on such high debt to income ratios, chances are that many people who are now facing foreclosure on their homes would not be facing that agony.
In regards to those facing foreclosure, I personally feel a large part of the problem is due to the lenders allowing too high of a debt ratio to income, as I mentioned above. However, it is also the consumer's responsibility to educate themselves and to understand the impact a specific mortgage payment would have on their budget. It's always better to consider a home with a smaller mortgage payment than to over-extend ones budget.
Sure, it's tempting to upgrade to a newer or larger home with updated features, but if it means your mortgage payment is going to drag you down like a ball and chain it just doesn't make sense to go that route.
To avoid a massive foreclosure mess again in the future, Treasury Secretary Henry Paulson is expected to recommend a revamp of rules on home lending -- including nationwide licensing standards for mortgage brokers. Marketplace's Sam Eaton says a coalition of community organizations will also be asking for help.
Improving the lending rules nationwide would certainly help to create mortgages that make sense for the homeowner. In my opinion, it's a good step in the right direction.