Posted on 08/31/2006 5:26:52 PM PDT by Mini-14
They promise the American Dream: A home of your own -- with ultra-low rates and payments anyone can afford. Now, the trap has sprung
For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn't even need to produce documentation, much less a downpayment.
Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket. The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created.
...
The bill is coming due. Many of the option ARMs taken out in 2004 and 2005 are resetting at much higher payment schedules -- often to the astonishment of people who thought the low installments were fixed for at least five years. And because home prices have leveled off, borrowers can't count on rising equity to bail them out. What's more, steep penalties prevent them from refinancing. The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk. But others, caught up in real estate mania, ignored or failed to appreciate the risk.
...
The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at New York's Ford Foundation. "It's going to kill all the people but leave the houses standing."
(Excerpt) Read more at businessweek.com ...
Ditech is one of the worst ones out there. I've heard plenty of stories where they promise an impossibly-low rate and closing costs, then come back at 8% with $13000 in closing costs on a $130,000 loan.
Whenever I heard the ads for ARMS, I would run, screaming NO! in the opposite direction.
Well my credit score was over 700 and I had no shortage of idiots telling me that I would never qualify for a low fixed mortgage.
100% loans are OK in certain circumstances. One example is if you have cash but would rather keep your money in the bank for a rainy day, or investments, etc. This way if you do get in a bind, you can use that cash to either get by, or pay down the loan to sell it if values have declined.
Another one is if the property is legitimately being sold well below market value. Where you have trouble is buying at 100% in a soft market, or on a very high end home (high end homes fluctuate in value much more than more modest ones do) or when you don't have a dime in the bank to fall back on.
Well, since I'm always honest with my clients, I say you were talking to the wrong guys.
Again, I'm glad you kept your dukes up.
Just curious...what reasons were they giving?
I would always point out to people that the next time the see the add to pay attention. It clearly states "lender fees of only $X." Attorney, title, appraisal, etc... are NOT Lender fees and NOT covered by that claim.
And I honestly wonder, how many loans does Dietech actually do. They have to do a lot to maintain that multimillion dollar ad campaign. But in 10 years I have ran across 1 person who has used them.
I also assume a good amount of people who go to them are subprime. Though I have done more than my fair share of subprime loans.
I do everything, from subprime to A-paper. I've run across a couple 770 score borrowers who were in 11% loans from either Ditech or Beneficial etc.
Yep. But often, with the rate increase associated with an 80/20 I would just run a 2nd behind the purchase and they get their down payment back but still get the primo rate on the 1st.
A late payment here and there from someone I cosigned for on a car loan. But I suspect the main issue was that the brokers were being paid to promote ARMs.
In my opinion, Business Week now slants their articles to support the democRAT party. Back when Clinton was president, Business Week was much more positive about the economy and wrote articles about how inflation is actually lower than the official BLS inflation rate numbers. Now that Bush is president, Business Week has turned negative about the economy and they write a lot of unsubstantiated negative news stories about the economy and corporate America. Before long it's going to be the conservative websites against everybody else in the biased liberal MSM.
Very true, and I've done that too. Often I'll do that if they haven't sold the other house, and plan to pay off the 20% when their other house sells.
If home values have declined since you bought your house,(nationally within the last 6 months) you still have 4-5 years on an ARM until the lump payment is due.
Hmmm. Even with that, if you're score is 700+ it's 700+, doesn't usually keep you out of A-paper. It's amazing what some people try to get away with.
Beware the drive by media...lots of scare tactics, little facts.
My thinking exactly. Why tie unsecured debt to your house?
Yes, and that is why the GOP will do better than anyone in the MSM or the DNC expects in the November elections (and that is because Americans are doing better economically than one would think from reading MSM newspapers.)
Mortgage rates dip to lowest level since early April
By Associated Press
Thursday, August 31, 2006 - Updated: 02:20 PM EST
WASHINGTON - Rates on 30-year mortgages fell for a sixth consecutive week, providing home buyers with more relief from an earlier rise in rates.
Mortgage giant Freddie Mac said Thursday that 30-year, fixed-rate mortgages dipped to 6.44 percent this week, down from 6.48 percent last week. That was the lowest level for 30-year mortgages since they averaged 6.43 percent the first week in April.
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