High Rates Let Air Out of Housing Market: Adjustable Mortgages Undergo Big Swings

SF Chronicle ^ | 11/20/2005 | Kelly Zito

[ex-Texan]

Very smart move, people. Follow your real estate agents advice and believe the mortgage broker. Repeat after me: "Your mortgage broker is your friend." Look deep into my eyes, repeating slowly after me: "Exchange your risky ARM loan for a negative amortization loan." NOT! (Want to Learn More?) Repeat again some favorite naysayer mantras post on FR every day:

"There are no real estate bubbles. You are not being patriotic. You are sounding just like a Democratic Party troll. You are spouting MSM propaganda. Time to move on."

[Pukin Dog]

It is time for the greedy and the stupid to suffer. I'll be right their to cash them out of their debt and take their property for a HUGE discount.

[A. Pole]

Adjustable Mortgages Undergo Big Swings

Bankruptcy laws were changed just on time!

[DCPatriot]

I'll be right their to cash them out of their debt and take their property for a HUGE discount.

....and because there are a ton of homes on the market, your HUGE discount isn't really a discount at all, since home sales that follow yours will probably be LOWER than what you paid.

[Toddsterpatriot]

Bankruptcy laws were changed just on time!

Exactly. Now people will have to pay what they owe.Unfair!!!

People didn't have to pay off their mortgages under communism. I miss the old days, don't you?

[Pukin Dog]

I never sell.

I buy and rent them out. And yes, I get positive cash flow, because I choose wisely.

[Doe Eyes]

I'll be right their to cash them out of their debt and take their property for a HUGE discount.

I have a friend that did just that when property prices collapsed in the late 80's here in Austin. Bought Condo's with his credit cards.

He's a rich man.

[doc30]

I'm in the Tampa FL area and had my chops busted bu co-workers when I told them I went with a 30 year fixed on my starter home. Told I was crazy for throwing money away in interest when an interest only loan could save me a couple of hunderd bucks a month, especially if I was going to be moving when my wife finishes school. This is the exact reason I went with conventional financing. What I pay now, is what I will be paying when the variable APR interest only loans start going up for every one else.

[Doe Eyes]

Exactly. Now people will have to pay what they owe.Unfair!!!

Personally, I'd rather see the bank eat it.

Its an unsecured loan. A smart business would be more careful who they lend money to.

[glorgau]

It will probably take a at least a year before the desperation really gets going in the SF Bay area. It is just starting to peek out for now.

[glorgau]

What I pay now, is what I will be paying when the variable APR interest only loans start going up for every one else.

Yeah, but a 5 or 7 year lock is a pretty long time. If you're moving any time soon, it still makes sense. Negative amortization is just plain crazy.

[doc30]

A lot of it has to do with what will be going on in our lives 5 years from now. There are a lot of complications in planning for us that most people don't have.

[narby]

I knew that was your post ex-T, before I even looked. When are you going to quit spamming FR promoting your web site?

You'd be a lot more believable if you hadn't been predicting doom in the housing market 2 years ago, before my house appreciated 50%.

[motzman]

I hear lots of people say what you say. All of my friends that use interset only/arms understand how they work and they all have benefitted (BIG TIME here in Jersey). All of them own multiple homes, all are what most would describe as "wealthy". And, NONE of them started out wealthy. And NONE became wealthy "from their job".

All of my "fixed rate" friends simply don't understand financing. Not everybody can play the Real Estate game, and not everyone should, but I see the same thing over and over again. The fixed rate people are usually cash poor, skeptical of EVERTHYING, and wish financial ruin on savvier investors than themselves (see? I told you!)

Here's some advice the richest man I know told me: "Buy as many houses as you can with as little down as possible. Make sure you buy in a good area, and you will always make money, and most likely you will make a LOT of money. Emotional attachment to property is for suckers"

[Toddsterpatriot]

Its an unsecured loan.

A mortgage is an unsecured loan?

[Doe Eyes]

A mortgage is an unsecured loan?The change we are talking about has to do with credit card loans.

[Toddsterpatriot]

A mortgage is an unsecured loan?

The change we are talking about has to do with credit card loans.

So, A.Pole was wrong to bring this change into a discussion of mortgages?

[Pukin Dog]

I agree that you should buy lost of real estate, but I do NOT believe that variable interest and zero interest loans are a good idea. I fixed rate loan is safer and looks better to creditors when you come back for more cash for another place. The bottom line is that too many people are buying homes that they cannot afford. I take advantage of that situation buy cashing people out and taking over their loans. Then I refinance the property with a proper loan, install some good renters, and let them pay for my property. I am right now looking at a couple of properties where both families got zero interest loans. In both cases one of the spouses lost their job. Now they cant pay and just want out.

[Pukin Dog]

You did the right thing. The greedy suffer in the end.

[motzman]

It really depends on each individual situation, and not having a solid "knowledge base" could spell disaster for a neophyte investor. Then again, I know people who can't even spell "mortgage" who followed good advice and have done very well with i.o/arms.

My basic point is that the people who are willing to educated themselves and take reasonable risks do very well.

It's good to be conservative, but sometimes it's foolish to be too conservative. When I used to do mortgages, I often saw a pattern--the "safe" people looked at every twist and turn as a potential disaster, while the "risk takers" saw every twist and turn as an opportunity. The safe people approach financing as if it's a root canal, while the risk takers approached financing as their chance for financial independence. It doesn't always work out, but I know a LOT of people (mostly older) that kick themselves every day for sinking huge cash into a house when they could've bought two (or more!) houses and made out like a Edwards/Corzine/Bloomberg.

Reminds me of a very good friend who sunk a 40% downpayment into his house a few years ago. I literally begged him not to do it--but he wanted to be "safe". His accountant called him a fool. But he's an Italian-money-in-the-mattress guy. Afraid of financing anything. Now he wants to sell the house--which he could get a lot more for if he would have gotten an equity loan and upgraded everything, rather than upgrading a couple of things and paying cash (dope!)and buy 2 more but he doesn't have the cash to do it (comfortably). And, of course, he swore that he'd never sell the house (told ya!) I even offered him the chance a few years ago to get in with a small investment group that buys and flips houses. "Too risky" he said. Now he's crying.

Even worse are the people I know that are "still waiting" for the bottom to fall out and swoop in and buy cheap. They waited in 2000. And 2001. And 2002. Now they have to wait forever or get an i.o./arm to even afford to get into a house. I've told them all since 2000 "There will be no crash in Northen Jersey. There might be a slight slowdown in appreciation, but even then you're still doing the wrong thing by waiting!".

Oh, well.