The No-Money-Down Disaster (Housing)

Barrons.com ^ | Lon Witter

[Hydroshock]

A HOUSING CRISIS APPROACHES: According to the Commerce Department's estimates, the national median price of new homes has dropped almost 3% since January. New-home inventories hit a record in April and are only slightly off those all-time highs. Existing-home inventories are 39% higher than they were just one year ago. Meanwhile, sales are down more than 10%. Although the stocks of new-home builders are down substantially, the stock market and many analysts are ignoring other implications of the housing news. In the latest Barron's Big Money Poll of institutional investors, not a single money manager ranked problems in the housing ...

[Hydroshock]

The rest of the article is subscriber only.

[Arcy]

The real problem is interest only mortgages. People buying more home than they can afford.

[goldstategop]

Liberals talking down the economy before the election. Expect more articles of this nature to crop until just before Election Day.

( No more Olmert! No more Kadima! No more Oslo!)

[KoRn]

We didn't have to put anything down for our house. What's the big deal? We just rolled the closing costs and the 750 other nickel and dime expenses into the loan. It was nice. All we had to do was sign our name to 1,000,000 papers and move in. It was our first house, and most likely not our last.

[alice_in_bubbaland]

I've heard about the "No Interest" mortgages advertised on the radio. Since I'm not familiar with them, how do they work? No principal payments? Sounds very dangerous to me!

[Senator Goldwater]

Foreclosures will skyrocket.

You see them all over the DC area: McMansions owned by government employees with three SUV's in the driveway.

Taxpayers are guaranteeing these loans.

[Hydroshock]

Foreclosures are skyrocketing.

[Always Right]

Another day, another doomsday article about the housing 'bubble'. Yes things aren't as good as the last 4 boom years. Inventories are getting up to 7 month supply, but that is where the historical average is. Sales are down, but after 4 record years of sales what do you expect. A 3% drop in price is not good, but considering what prices have down the last few years it is not the bubble bursting. All signs point to us being in a soft landing.

[Always Right]

Foreclosures are skyrocketing.

Really, from what? Are foreclosure rates at historic highs or are they just recovering from being at historic lows. Hint, the foreclosure rates are not at historic highs. Liars using stats again.

[gieriscm]

I've heard about the "No Interest" mortgages advertised on the radio. Since I'm not familiar with them, how do they work? No principal payments? Sounds very dangerous to me!

When I refied the lender tried hard to push me into one of these. Basically you can make one of four "optional" payments each month:

Highest - 15 year amortization payment
Next Highest - 30 year amortization payment
Next Highest - Interest only (30-year amortization)
Lowest - About $100 less than the interest-only. The $100 difference was added to the loan principal.

After five years the loan converted to a 25-year amortization based on whatever principal remained owing, at a new prevailing interest rate (bank picked it, of course).

We passed.

[Hydroshock]

http://www.freerepublic.com/focus/f-news/1688530/posts

[Loyal Buckeye]

All we hear about are the horror stories of people buying houses and not being able to afford the payments. In many cases, but certainly not all, the payment problems were caused by the borrowers and not variable rate or similar types of loans.

The horror stories are dwarfed by stories of positive outcomes where people were able to buy homes due to the various housing and lending programs that are available.

[HEY4QDEMS]

Foreclosures are skyrocketing.

I'm in Massachusetts, supposedly one of the areas hardest hit by the housing slowdown, and foreclosures are up but to say they are skyrocketing is a reach at best.

[Always Right]

You see them all over the DC area: McMansions owned by government employees with three SUV's in the driveway.

Unfortunately the government is not in a hurry to lay any of them off, so it is not exactly a problem.

[HEY4QDEMS]

The word "forclosure" doesn't even appear in the article.

[VeniVidiVici]

Foreclosures are skyrocketing.

Article in the paper the other day said they were down in Orlando.

[MarkL]

I've heard about the "No Interest" mortgages advertised on the radio. Since I'm not familiar with them, how do they work? No principal payments? Sounds very dangerous to me!

I think that you might be talking about "Interest Only" loans. IO ARMs are really interesting, in that if you've got a rate cap on your interest payments, and the rate increases to an amount greater than your cap allows, you actually wind up with a negative amortization, meaning that you owe MORE from month to month!

Mark

[Hydroshock]

They are up on Fl as a whole, in Ca, and in the northeast just to name a couple of areas.

[Arcy]

Exactly. No principal payments. And some of these are adjustable rate mortgages. Because they are paying interest only they are never really building equity except if the home appreciates in value. Many people bought the most expensive home they could afford hoping that the home would appreciate in value 50K to 100K in value during their short ownership. Their plan was to sell at that point and make this huge profit. But what happened is that interest rates started to rise. A 1/4 point here a 1/4 point there. Suddenly they can't afford the home anymore as their payments increase. Add to that the falling demand for mini-mansions and you have the largest foreclosure rates in history.

[alice_in_bubbaland]

Thanks! Bank picked interest after five years, sounds like Russian Roulette.