[goldstategop]

Welcome to The Mother Of All Ugly Home Loans - the ARM or Adjustable Rate Mortgage Loan where each month you pay more down on interest than on the principal loan balance. In a tight real estate market, its now become a ticking time bomb for many homeowners who took out these loans on their half a millon dollar homes since this was the only means they could afford a home at all.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[rrrod]

Some ARMS are OK....I have two left on some props. One started at 4.25...the other at 5.25. getting the right bank is the key. Look at the caps and PAY them down fast. Credit Unions are very good for this type of loan but run from these so called mortgage companies. It seems waaaay to many people got in over their heads.

[rrrod]

Some ARMS are OK....I have two left on some props. One started at 4.25...the other at 5.25. getting the right bank is the key. Look at the caps and PAY them down fast. Credit Unions are very good for this type of loan but run from these so called mortgage companies. It seems waaaay to many people got in over their heads.

[hinckley buzzard]

Over the years he has taken out $190,000 in cash through refinancings.

This guy is a foolish spendthrift who has no one but himself to blame. If he loses his house it will be because he deserves to lose it. Yet he persists in trying to deflect blame on to others who didn't warn him enough to save him from himself. Bah.

[PERKY2004]

EEEK.

Makes me glad that when we bought our home in 2003, we got a 15-year fixed rate mortgage.

[AZRepublican]

My mom has what they call a reverse mortgage. No monthly payments for life. They even gave her a big line of credit to use anyway she wants and she can't lose her home till she dies.

Wish all mortgages were like that :-)

[capitalist229]

The Fed is bailing them out as we speak by injecting prodigious amounts of credit into the system ala 2001.

The stock market has benefitted from this cash as well but the dollar is showing the strains of too much global liquidity.

The question is how far the Fed will allow the dollar to drop before a downward spiral takes it out of their hands.

BUMP

[dyed_in_the_wool]

For the moment, this allows the 56-year-old Hertzberg to continue living in his tract home despite being only marginally employed. But his debt is swelling, and his mortgage company controls his fate.

"I am rather screwed," he said.

Time to grow up, idiot.
BTW, the mortgage company doesn't "control his fate", he does. He just doesn't realize or accept it.

[Southack]

"loans such as Hertzberg's, often called "pay option" loans.
One of his options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan.
A second possibility is to pay $2,279, which would cover only the interest.
But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later."

Oh...my...God...

This guy is borrowing an extra $1,200 per month. His mortgage company deserves to take the bath that it will soon get.

Some loan products are just bad ideas...

[Fierce Allegiance]

Hertzberg to continue living in his tract home despite being only marginally employed.

I don't necessarily believe passing new legislation should be done to protect the dumb from themselves. Clearly the guy bought more than he can afford. It's his own fault, nobody elses. If you can't afford a house at these historically low interest rates, you have no business owning one. go rent.

[EVO X]

"In the first eight months of 2006, even as the real estate market began to weaken amid fears of a downturn, the appeal increased again. Nearly 1 in 3 California loan applicants are now choosing them. The state boasts about 580,000 active pay option mortgages, about half the U.S. total."

All I can say is WOW...

[elli1]

HERTZBERG bought his house 11 years ago for $129,995, immediately after his second divorce. (He has no children.)...Comparable homes in his neighborhood fetch more than $400,000. With fresh paint and a few repairs, Hertzberg could probably sell his place for $275,000 more than he paid.

He would see little of that, however, because he's already seen so much. Over the years he has taken out $190,000 in cash through refinancings.

Hertzberg's home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. He bought dot-com stocks and lost money. To recoup those losses, he bought commodities — and lost money faster.

"Free money always has the unfortunate effect of making people go overboard," said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump's "How to Get Rich." "You'd be surprised how fast $190,000 can go."

...Last fall, he went to a mortgage broker and refinanced again to make his payments easier to bear. He thought he would have a five-year window before the principal started coming due.

But the day of reckoning is arriving early. By paying the minimum, Hertzberg has increased the size of his loan in a little over a year from $320,000 to $332,616.

..."I'm waiting for a 100-year loan," [Hertzberg] said. "My heirs can worry about paying it off."

As I was reading this, I first thought the guy was just an Idiot. By the time I was through the piece, I decided that he is a con artist who has been gaming the system in order to get cheap rent & never had any intention of paying down the principle.

[CharlesWayneCT]

So? They probably only put a few thousand dollars of their own money into the houses. They got to live in a home for a while, a nice home, and now that it is clear they can't afford it, the bank will take the house off their hands and they can go back to renting, or into a smaller home that they should have been in to begin with.

These loans are bad, but the people who took them because they had no choice aren't really the ones I care about, because THEIR alternative was simply NOT to buy a home, and that's where they will end up (albeit with a few thousand less in their pockets).

I worry more about people who took 2nd mortgages on houses they owned for years, based on low interest rates and inflated home prices. They could lose their homes which otherwise were not in danger at all, simply because they wanted money the easy way.

[Caipirabob]

My very first loan was an ARM on a home I owned for many years. I think the cumulative payment was $530 a month for a lake house in Boca Raton. I refinanced after two yeas for a fixed 6.25% and then bought a larger 4/2 later with the equity with another fixed rate loan.

The biggest variable factor in Florida is insurance, of course.

That will be the last straw with many, many people in the Florida market. Rates have doubled consistently each year for 3 years now and it looks likely it will double again for a 4th year.

People down here who purchased fixed rate loans had no way to know years ago that it would be insurance that would be the devastating factor in their financial formulas.

And it's going to get much worse before it gets better. If they have resetting ARMs on top of the insurance? Yikes...