As rates soar, 2.2 million Americans risk losing homes this year
inmytree
Posts: 4,741
I'm not sure how I feel on this. One one hand, people should have planned ahead, not buying a home they couldn't afford, on the other, subprime lenders may have set people up for failure...
I know I was in process of purchasing a home 3 years ago, I had more than one real estate agent and mortgage broker who told me I could qualify for mortgage that was really beyond my means....I eventually went with a for sale by owner and I'm glad I did....
my point is, those telling me I could get large mortgage did not explain the long term....I happened understand the long term, but I'm sure many others didn't...
http://news.yahoo.com/s/afp/20070314/ts_alt_afp/useconomyproperty_070314133106
As rates soar, 2.2 million Americans risk losing homes this year
by Virginie Montet2 hours, 56 minutes ago
In the heady days of the US real estate boom, it seemed like a safe bet to use her house as collateral for a loan. Today, Sharon Edwardsen risks losing her Staten Island, New York home, trapped by spiraling payments.
Edwardsen, a 47-year-old assistant optician, was tempted to take out a special high-risk loan targeted at people with low credit ratings. Today her monthly repayments have soared to 2,800 dollars, yet she only takes home 1,600 dollars.
She is among 2.2 million people across the US who risk forfeiting their homes by the end of the year as they struggle to meet monthly repayments swollen by rising interest rates, and triggering fears that a financial crisis could sweep US lenders.
"I'm panicking every day. I'm not sleeping because I'm worrying. This house has been in my family forever and I don't want to lose it. But I can't make the payments they are asking me for," she told AFP.
In 2005 these so-called subprime mortgages, offering a short-termed fixed interest rate which then converts into a variable rate of about 12 percent, accounted for some 20 percent of all US mortgage deals.
As the real estate market boomed, they enabled some of the country's poorest citizens to get a toehold on the property ladder. Some of the loans dubbed "ninas" for "no income, no assets," were seen as an innovative way for people to realize the dream of owning their own home.
But now as interest rates rise, one in five borrowers of these high-risk exotic loans is set to default and see their homes seized by creditors.
"People don't understand that the loan is going to go up after two years," said Eric Halperin, director of the Washington office of the Center for Responsible Lending.
"In many of these cases, the lender lends money without regard to whether they (the borrower) will be able to repay the loan."
During the boom years, when the repayments got too high, home owners could even refinance their loans borrowing against the increased value of their house.
That's exactly what Edwardsen did, remortgaging her home three times between 2002 and 2006.
Each time she got into difficulties, her mortgage broker would offer a new deal. From an original loan of 103,000 dollars, she now owes the credit company some 285,000 dollars even though her monthly income has remained the same.
"They took advantage of the fact that I was so desperate that I needed it. I told her (the broker) I had trouble with it. So she said in three months 'we're going to do this again. We're going refinance you again and the money you take out, you going to use it for your mortgage payments,'" Edwardsen said.
"Blinded by their own greed and the incredible amount of money that was being provided by Wall Street, mortgage companies were making loans that were abusive," agreed Ira Rheingold, of the National Association of Consumer Advocates which has taken up Edwardsen's case.
Some companies were filling out false applications to ensure the credit was agreed. In Edwardsen's case, she became a doctor with a monthly income of 6,000 dollars.
"They were making loans and they knew people couldn't afford it and they made them anyway," Rheingold said, blaming "greedy deregulation, failure of the government to intervene and Wall Street's incredible appetite for high risk bonds that would pay them a lot of money."
Mortgage companies are now beginning to feel the bite.
Monday, New Century Financial, one of the major players in the market, said its credit was being cut off meaning it will have to declare bankruptcy in the next few days. Federal and state prosecutors were also probing its records.
Last week as the shaky mortgage market dragged down the US stock market, US financial authorities toughened up conditions for approving such high-risk loans.
But for some, the move comes too late.
"I'm glad they are doing it, but most of the damage has already been done. They are closing the barn door after the horse and cows are already ran out. It's too little, too late," Rheingold said.
I know I was in process of purchasing a home 3 years ago, I had more than one real estate agent and mortgage broker who told me I could qualify for mortgage that was really beyond my means....I eventually went with a for sale by owner and I'm glad I did....
my point is, those telling me I could get large mortgage did not explain the long term....I happened understand the long term, but I'm sure many others didn't...
http://news.yahoo.com/s/afp/20070314/ts_alt_afp/useconomyproperty_070314133106
As rates soar, 2.2 million Americans risk losing homes this year
by Virginie Montet2 hours, 56 minutes ago
In the heady days of the US real estate boom, it seemed like a safe bet to use her house as collateral for a loan. Today, Sharon Edwardsen risks losing her Staten Island, New York home, trapped by spiraling payments.
Edwardsen, a 47-year-old assistant optician, was tempted to take out a special high-risk loan targeted at people with low credit ratings. Today her monthly repayments have soared to 2,800 dollars, yet she only takes home 1,600 dollars.
She is among 2.2 million people across the US who risk forfeiting their homes by the end of the year as they struggle to meet monthly repayments swollen by rising interest rates, and triggering fears that a financial crisis could sweep US lenders.
"I'm panicking every day. I'm not sleeping because I'm worrying. This house has been in my family forever and I don't want to lose it. But I can't make the payments they are asking me for," she told AFP.
In 2005 these so-called subprime mortgages, offering a short-termed fixed interest rate which then converts into a variable rate of about 12 percent, accounted for some 20 percent of all US mortgage deals.
As the real estate market boomed, they enabled some of the country's poorest citizens to get a toehold on the property ladder. Some of the loans dubbed "ninas" for "no income, no assets," were seen as an innovative way for people to realize the dream of owning their own home.
But now as interest rates rise, one in five borrowers of these high-risk exotic loans is set to default and see their homes seized by creditors.
"People don't understand that the loan is going to go up after two years," said Eric Halperin, director of the Washington office of the Center for Responsible Lending.
"In many of these cases, the lender lends money without regard to whether they (the borrower) will be able to repay the loan."
During the boom years, when the repayments got too high, home owners could even refinance their loans borrowing against the increased value of their house.
That's exactly what Edwardsen did, remortgaging her home three times between 2002 and 2006.
Each time she got into difficulties, her mortgage broker would offer a new deal. From an original loan of 103,000 dollars, she now owes the credit company some 285,000 dollars even though her monthly income has remained the same.
"They took advantage of the fact that I was so desperate that I needed it. I told her (the broker) I had trouble with it. So she said in three months 'we're going to do this again. We're going refinance you again and the money you take out, you going to use it for your mortgage payments,'" Edwardsen said.
"Blinded by their own greed and the incredible amount of money that was being provided by Wall Street, mortgage companies were making loans that were abusive," agreed Ira Rheingold, of the National Association of Consumer Advocates which has taken up Edwardsen's case.
Some companies were filling out false applications to ensure the credit was agreed. In Edwardsen's case, she became a doctor with a monthly income of 6,000 dollars.
"They were making loans and they knew people couldn't afford it and they made them anyway," Rheingold said, blaming "greedy deregulation, failure of the government to intervene and Wall Street's incredible appetite for high risk bonds that would pay them a lot of money."
Mortgage companies are now beginning to feel the bite.
Monday, New Century Financial, one of the major players in the market, said its credit was being cut off meaning it will have to declare bankruptcy in the next few days. Federal and state prosecutors were also probing its records.
Last week as the shaky mortgage market dragged down the US stock market, US financial authorities toughened up conditions for approving such high-risk loans.
But for some, the move comes too late.
"I'm glad they are doing it, but most of the damage has already been done. They are closing the barn door after the horse and cows are already ran out. It's too little, too late," Rheingold said.
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Comments
BAD idea. Buy on a fixed rate conventional mortgage.
I am worried a friend of mine is about to be unable to afford his house. They bought this big ass fancy home because he could afford the payments on a 5 year ARM.
Then his wife got preganant and wanted to stay home to raise the baby. Strike 1.
Rates went up a little bit. Strike 2.
His 5 year ARM is about to run out......rates are higher.....strike 3.
I feel bad for him, but he should have stayed in his more modest home with a conventional mortgage.
are you looking to pull out the equity...? to lower your interest rate...?
[1] pay off the remainder of the 1st loan =100,000
[2] pay off 50,000 equity loan .
[3] pay off my credit card debt of about 10,000
so iw as looking to take out a 2nd 30yr fixed loan of $200,000 make any sense to you ?? i appreciate your advice.
ok, I see...you were confusing me with the term "2nd mortgage"...I think you should look into refinancing your current loan, at which time you could pull the equity out of your home, depending on the current value..you'll have to pay some fees, such as apprasial and lawyer and the other crap fees mortgage companies make you pay...don't pay for points...unless you really want to...
you say you owe 100 grand on your current loan, and let's say your home is worth 200 grand, you get the loan for 160 grand and pay everything off...and still have equity in your home...
the key is to not refinance for more than you can sell the home...meaning, if you get a loan for 200 grand, will you be able to sell your home in a year for that 200 grand...
Back in 03' and 04', most people bit the sales pitch, opting for the lowest rate and payment possible. Rather silly considering they could've opted for a fixed rate that wouldn't have exceeded more than, oh, .75% than the adjustable rate and it wouldn't have the potential to fluxuate up to 3% higher in year and a half. Mortgage lenders preferred pitching arms rather than fixed rate loans as they'd have the opportunity to call these people back when the fixed period of the loan (anywhere from 6 months to seven years) expired and the rate started to jump. The problem is that many who took these programs grew saturated in credit card debt and their FICOs went in the tank, meaning when the time came to refinance after the loan began to adjust, their credit qualified them for a sub-prime rate rather than a low, fixed rate. Picture a plethora of people buying a home at 5.25%, doing what many young adults do (saddling themselves with deeper debt and having a hard time keeping up with their bills) then trying to refi 4-6 years later when their adjustable rate is at 9.75% and they only qualify for a sub-prime loan that allows them to finance a certain percentage of their home's value at 10-12% fixed. That's where we're at right now; unfortunately we live in a consumptive society driven by short-term budget rather than long term feasibility. Do some research on the amount of credit card debt Americans own ~ it's heinous. The gentleman who started this thread discussed sub-prime financing; it shouldn't be taken just because it's offered ~ high adjustable rate mortgages, credit cards, high interest car loans... it'll get ugly down the road if people buy things cause they can rather than when they shouldn't. I'm just as guilty as the next person: my credit cards take a beating when Pearl Jam go on tour and I don't have a mortgage to write it off with.
And here's an interesting statistic - in either 05' or 06' one out of every two homes purchased in America was a second home or investment home. I'd have to dissent with Bush's analysis of our healthy economy, something he's touted for the past 3-4 years. Wealthier people are buying more homes and business-savvy folks with capital are sucking up the foreclosures of people who bought a payment rather than a plan.
Borrow the least amount you need to in order to accomplish what you seek to do financially. You already have a first and second from the sounds of things ($100K mortgage and $50K equity loan). You aim to consolidate your debt, also paying off $10K in credit card debt which is a smart move considering it could take you a very long time to do so if you, like most, pay the minimum due or just over the minimum amount. Also, if you're capable of paying out in the future what you pay out now, either continue to pay out what you do now (throw the extra money at your new mrtgage) or take the difference between your monthly outgoing bills in the future versus what they are now and put that money in a savings account and have the discipline to let that money grow. You can use it for medical emergencies, vacations, whatever you want to and won't have to lean on your mortgage to bail you out or provide you with what you want that isn't financially sound at the time. Also, split your mortgage up into two half payments per month rather than one full payment per month - this will cause your loan to be paid off much quicker.
My question is... why borrow the full $200K? Inmytree offered sound advice concerning the notion of maintaining equity in your home. Take Florida for example - demand went through the roof a few years back and has stabilized; there are now a number of people who borrowed moreduring boom times than what their home actually appraises for now and they're fucked.
Some advice - borrow from a direct lender. Don't go through a broker as brokerages can mark up your rate and charge you origination fees. Origination fees are NOT tax deductible. On the other hand, a direct lender will offer you the opportunity to buy your rate down, i.e. take points. If you opt to buy your rate down, your closing costs will be higher but the dollar amount of the points is tax-deductible as interest come tax time. If you have any questions, feel free to pm me.
Danny boy nailed it...
do your research...
http://www.bankrate.com/brm/rate/mtg_home.asp
http://www.familyresource.com/finance/home-and-mortgage/mortgage-fees-what-should-you-pay-what-shouldnt-you
http://clarkhoward.com/shownotes/category/4/125/135/394/
know what fees the lender is trying to charge you, and only borrow what you can afford...sure, you could go all the way to 400 grand if that's what your home is worth, but why do that if you don't have to....
my other half is has lots and lots of mortgage experience and I'd be more that happy to run the terms of the loan past her, as well...so post 'em here or PM me...
one final thought, get a copy of your credit report...this is the free one:
https://www.annualcreditreport.com/cra/index.jsp
you'll get a copy of your report for free, but you'll have to pay for your credit score....which is something you may want to do...also beware of too many people pulling your credit for credit checks, for some reason, it negatively effects your credit score...
good luck...
I'm not saying to not borrow from your original mortgage company as they may offer you good rates. When I say your mortgage company I mean your lender... If you originally went through a broker and they set you up with a mortgage company, don't call them. If there's a middle man the deal isn't as good for you. Did you originally go through a broker or did you go to a bank, credit union or direct lender (such as going to or calling a Countrywide branch in your home town)?
You can shop for credit - typically a credit union is going to offer you competetive rates with lower closing costs. Don't go through Lending Tree either or any online sites that are similar as they simply shotgun your information to a bunch of lenders and you end up with a bunch of inquiries on your bureau which drops your FICO score. You're allowed to shop for credit but shouldn't have your credit pulled more than 10-12 times per year. I sent you a pm but it looks you might've needed some additional information.
In general, it's a bad idea to borrow more money to pay off debts. Just start working harder, saving and pay them off on your own. You'll come out ahead in the long run.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
if you say so...
I say if somebody does it correctly, refinancing can be helpful...
and with all due respect, what does "work harder" mean..? are you saying get a second job...?
My time is worth waaaay more than money. I don't understand the whole 'ahead in the long run' thing. That depends solely on what's more important to you in the grand scheme of things. For some it's not all about being a bit more ahead monetarily, it's about the time they spent with friends and loved ones enjoying life.
Man is least himself when he talks in his own person. Give him a mask, and he will tell you the truth.
-Oscar Wilde
Totally agree.
I guess I inserted "work harder" because I'm assuming that they would need to do more to pay down those debts. It doesn't mean necessarily getting another job, but perhaps working harder to stay on a budget that is within their income level. Obviously, if you have 10K in credit card debt, it means you've been having trouble living on what you make.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
Good for you. For me, the reduced stress of not being a slave to payments or living paycheck to paycheck improves the quality of my life in the grand scheme of things. Plus the freedom to spend money on my terms instead of a payment schedule is worth a lot to me as well.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
fair enough...
however, it's not really that hard to put 10K on a card...who knows, medical expenses, school expenses, car problems, you know, things that just happen...yeah, yeah, he should have saved...woulda, coulda, shoulda, it is what it is...
and it this case, jose made a good investment, he bought a house, and it's value increased...I think if he does it right, he's is making a good choice in using that to pay down is debt...I don't see how that can be a negative thing...
That's cool. But I don't live pay check to paycheck, myself nor am I a slave to any payments. I've never been a big spender so I always have money when I need it for things like trips or concert tickets.
Man is least himself when he talks in his own person. Give him a mask, and he will tell you the truth.
-Oscar Wilde
Cool - sounds like you're doing it right. My initial comment that you quoted was toward someone that was talking about big payments.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.