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 ...
Look, while people who take out payday loans are too stupid to know what a bad deal they are, I find it difficult to believe that everyone who took out an option ARM wasn't aware of the basic fact that rates would go up if interest rates went up.
In other words, those with more than half a brain.
Some people only think of living for the moment, not the future.
Geez.....I heard the same doom and gloom in the 70's.....
Here comes the first wave... there's a reason those rates on the option ARMs were so low - they're not intended to be a home loan for John Q Public, they're for financing a house you intend to flip back to the market in the short term. Any mortgage broker who sold a prospective homeowner (not investor) one of these loans deserves to have the protection of the law lifted from him.
What is your angle/scam?
nah, my favorite is the interest only mortgage payments:
pay little, pay FOREVER
Look, while people who take out payday loans are too stupid to know what a bad deal they are, I find it difficult to believe that everyone who took out an option ARM wasn't aware of the basic fact that rates would go up if when interest rates went up.
Public school economics are simple, Republicians are for the rich, Democrats are good for you.
Why not just refinance another ARM again? Or just sell the house?
Damn, imagine having an ARM in the 21% Carter era? Worse than credit card debt!
I used to make 6% on my passbook saving account as an 8 year old.
Every day on TV I see advertisements to consolidate debt. take your credit cards and turn them into mortgages. Mortagages that tie your home to credit card debt.
The Mortgage game has no conscience.
There is good money to be made off the stupid!
Comments?
Option ARMs aren't such a bad thing if:
1. You understand the terms
2. You don't take the interest-only option every month
There are plenty of people who did neither 1 nor 2 and are now crying that they've been horrible scammed.
My opinion: eh, buyer beware.
Reminds me of the folks who buy insurance without actually reading what their policy covers.
These are option ARMs, not regular ARMs. Option ARMs can adjust monthly. It's a specialty product designed for an investor, not a person who is going to live in the home being bought. Banks may not want foreclosures, but if they can resell the mortgages at a lower risk level than the actual, they'll still make money of the transaction. Mortgage brokers who are paid per loan sold regardless of whether it works out in the long term don't have to care about the risk of default any more than it takes a bank to approve it.
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