Posted on 06/16/2006 6:59:23 AM PDT by Hydroshock
WASHINGTON – They are the new breed of “affordability” mortgages, and home buyers in high-cost real estate markets can't get enough of them: Interest-only and so-called payment-option plans that cut monthly payments sharply in the early years of a loan.
Lenders have marketed both types of mortgages aggressively – often to people who need to stretch their incomes to afford a home purchase – but have insisted that their borrowers have solid credit histories, excellent credit scores and fully understand the possible payment-shock risks once payments reset in a few years. In some parts of the country, the numbers of interest-only and payment-option loans have soared from single-digit market shares two years ago to more than 50 percent in 2005.
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But federal regulators worry that all is not well: Too few borrowers, they say, really comprehend the potential risks involved and have a solid grasp of how the loans work. Within weeks, a team of regulators led by the Federal Reserve and the Comptroller of the Currency is expected to issue new guidelines for mortgage lenders that could have the effect of reducing the number of interest-only and payment-option loans being offered.
"...the Federal Reserve and the Comptroller of the Currency is expected to issue new guidelines for mortgage lenders that could have the effect of reducing the number of interest-only and payment-option loans being offered"
If there is a housing bubble, this will be as close to a pin-prick as you can come.
Less money available in the market means lower prices.
If the stats that I've heard are correct - that 60% of new home loans in CA are of this "creative" type that may be restricted in the future, then essentially sales activity will dramatically slow until prices drop to the point where "conventional" mortgages are affordable
A customer could sue on just the personal inkling they have been insulted.
I was hoping for a gradual decline adn a soft landing, but I am increasingly pessimistic on that.
Wonder if since the onset of the 2001 recession that the Federal Reserve and the Comptroller of the Currency were told to look the other way when these crap mortgages first came out?
Without two wings?
A 2 bedroom condo with a price of $220K with not money down...with taxes and condo fee of $496 (includes all utilities) costs about $2,100 per month.
You can rent the same apartment in the building next door for $1300.
Soft landing my butt.
I said hoping, I hope to win the lottery as well.
I have been seeing signs of a drying up of credit for the past 5 or 6 months now. Keep in mind the economy has been kept afloat on a sea of credit for years now.
What is going to sink the housing industry are interest only loans at 100% loan to value where income is not verified and the seller pays all closing costs. Or an option ARM made to someone on a fixed income to consolidate debt without understanding that by making the lowest payment their balance was increasing. Or loans made to real estate speculators who purchase multiple homes at 95 - 100% LTV with the hopes of making a quick profit 6-12 months later on a flip.
The people ultimately holding that paper are the Chi-Coms, Japanese, Wall St. investment companies, mutual funds, etc. The real risk is that those entities get burned and all of a sudden there is a severely limited amount of money available to make mortgage loans. How borrowers repay the debt they have taken out at the terms at higher interest rates will determine Fannie, Freddie and every other mortgage related entity's fate. Consumers have never had to repay this amount of debt. The next two years (06-07) will give us a preview of what to expect as $1.5 - $2 trillion worth of adjustable rate mortgages reset to rates 2-3% higher. How these borrowers handle an extra $400-1,000 of mortgage payment will determine the extent of the meltdown.
I'm glad I'm renting.
my interest rate is higher by todays standards but its fixed thank god
FYI: I'm buying and have been since '91. Had to completely refi the house after 'the change' came in 2002, the stepdaughter graduated college, and the ex decided she didn't want to be married any more. Coincidental timing after I forked out for dues & tuition over 6 years, plus 2 cars?
Anyway, I am very very fortunate, thought it is a little tight, I could afford to keep the house. The difference of a 1550 sq ft ranch to own eventually on 2 acres vs 2 bedroom apt in the area is only about $200/month, which ain't bad for the outskirts of Raleigh, NC. Tax value on the place is right at twice what the refi amount nowadays. Smart or not to keep it then?
Well, I rent a 2 bdrm apartment for $1500/month in San Mateo, CA. A like condo would in this town would sell for about $550K! That would lead to a mortgage payment of around $3K/month + taxes about $600/month + condo dues, etc. The rent/price equation is complete out of whack around here. The only people that can do deals are the one's that are grandfathered in on family trust deals under prop. 13. They are the "landed class" in California.
I have met about half a dozen folk and their families that lived either in LA, SD, SF areas and sold their homes and moved here 3-4 years ago. The capital gains on their sells gave all of them enough $$ to buy outright a $200-$250K house and bank or invest the remaining $100K-$250K.
According to each of them, though making much less salary than in CA, their decisions pushed their retirement dates up 5-7 years.
I say bravo on such a smart move. Unfortunately, here in the Raleigh area, more and more people are moving in and it's getting crowded, congested and causing the cost of living to skyrocket between the cost of housing and taxes to build new schools, etc.
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