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Nightmare Mortgages
Business Week ^ | September 11, 2006 | Unknown

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 ...


TOPICS: Business/Economy
KEYWORDS: arm; estate; home; housing; mortgage; optionarm; real
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To: mkjessup

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.


61 posted on 08/31/2006 7:06:06 PM PDT by RockinRight (She rocks my world, and I rock her world.)
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To: Mini-14

Whenever I heard the ads for ARMS, I would run, screaming NO! in the opposite direction.


62 posted on 08/31/2006 7:06:30 PM PDT by roaddog727 (Bullsh## doesn't get bridges built.)
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To: RockinRight

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.


63 posted on 08/31/2006 7:07:30 PM PDT by Sender (“Dream as if you'll live forever, live as if you'll die today.”)
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To: ladyinred

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.


64 posted on 08/31/2006 7:10:34 PM PDT by RockinRight (She rocks my world, and I rock her world.)
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To: Sender

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?


65 posted on 08/31/2006 7:11:33 PM PDT by RockinRight (She rocks my world, and I rock her world.)
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Comment #66 Removed by Moderator

To: Mini-14
Caveat Emptor
67 posted on 08/31/2006 7:12:07 PM PDT by free_at_jsl.com
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To: RockinRight
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.

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.

68 posted on 08/31/2006 7:14:54 PM PDT by Phantom Lord (Fall on to your knees for the Phantom Lord)
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To: Phantom Lord

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.


69 posted on 08/31/2006 7:16:02 PM PDT by RockinRight (She rocks my world, and I rock her world.)
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To: RockinRight
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

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.

70 posted on 08/31/2006 7:16:27 PM PDT by Phantom Lord (Fall on to your knees for the Phantom Lord)
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To: RockinRight

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.


71 posted on 08/31/2006 7:17:15 PM PDT by Sender (“Dream as if you'll live forever, live as if you'll die today.”)
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To: Mini-14
With all the doom and gloom and "they're idiots" messages out there about ARMS and Interest Only loans, depending on the area you live in, they can be a great way to go.

We took out a 80% interest only, 20% fixed rate mortgage two years ago. Last year our home value increased 24%, this year we are on target to increase by 28%. I live in a high growth market with little end in site. On top of that, paying interest only on the first mortgage gave us enough tax breaks that for the first time in our marriage, we actually got money back from the government, instead of owing.

For the last two years, barring a 4 month period of time when we had some severe financial problems and couldn't, we've put an additional $300/mnth onto our second mortgage. Anyone who's ever looked at a 30yr fixed amortization table knows that's WAY more into principle then you'll put in for the first two years of the loan.

At the end of our two year rate lock-in, we already have a broker who's putting together a 30yr fixed rate, typical mortgage for us.

Because of the extra money we've put into our second mortgage, our equity and money we've socked away by paying off credit cards we were stupid enough to have balances on (and not using again) we will take a small portion (under 10K) of our equity. This will pay off our 2nd mortgage completely, plus closing costs for the re-fi.

My monthly payments will be lower then I'm paying now, I'll have well over 100k in equity in the home and will have a mortgage slightly under 80% of the original selling price of the house.

I'm not saying these types of loans are for everyone, however in areas of fast growth, for people who do not plan on staying in a home for years etc, it can be a good way to go.

I don't regret our decision at all. Though our next home purchase, when we move out of S. Florida will be at minimum 20% down and a 15 year mortgage. (Thank you Dave Ramsey)
72 posted on 08/31/2006 7:17:18 PM PDT by Brytani (Keeper of the FR Loofah, Bath-cap and Rubber Duckie)
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To: Jaysun

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.


73 posted on 08/31/2006 7:17:24 PM PDT by defenderSD (Blogging from a secure undisclosed location in the southwestern United States.)
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To: Phantom Lord

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.


74 posted on 08/31/2006 7:17:26 PM PDT by RockinRight (She rocks my world, and I rock her world.)
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To: Shion

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.


75 posted on 08/31/2006 7:17:59 PM PDT by Porterville (Hispanic Republican American Bush Supporter)
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To: Sender

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.


76 posted on 08/31/2006 7:18:23 PM PDT by RockinRight (She rocks my world, and I rock her world.)
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To: art_rocks
"The local paper had an article"..."The paper pointed out"

Beware the drive by media...lots of scare tactics, little facts.

77 posted on 08/31/2006 7:19:29 PM PDT by NewLand (Posting against liberalism since the 20th century!)
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To: sgtbono2002
Mortagages that tie your home to credit card debt.

My thinking exactly. Why tie unsecured debt to your house?

78 posted on 08/31/2006 7:20:32 PM PDT by Smokin' Joe (How often God must weep at humans' folly.)
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To: NewLand

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.)


79 posted on 08/31/2006 7:22:36 PM PDT by defenderSD (Blogging from a secure undisclosed location in the southwestern United States.)
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To: Mini-14
POPPYCOCK!!! This article is way out-of-bounds. See below.

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.

80 posted on 08/31/2006 7:22:41 PM PDT by NewLand (Posting against liberalism since the 20th century!)
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