Posted on 03/14/2007 9:41:41 AM PDT by OnRightOnLeftCoast
WASHINGTON (AFP) - In the heady days of the US real estate boom, it seemed like a safe bet to use her house as collateral for a loan. Today, Sharon Edwardsen risks losing her Staten Island, New York home, trapped by spiraling payments.
Edwardsen, a 47-year-old assistant optician, was tempted to take out a special high-risk loan targeted at people with low credit ratings. Today her monthly repayments have soared to 2,800 dollars, yet she only takes home 1,600 dollars.
She is among 2.2 million people across the US who risk forfeiting their homes by the end of the year as they struggle to meet monthly repayments swollen by rising interest rates, and triggering fears that a financial crisis could sweep US lenders
(Excerpt) Read more at news.yahoo.com ...
I have no doubt that many of these "Americans" are investors caught with too many properties and I think its great. THEY ran the bubble up, and THEY are paying a price.
Around here the market was steaming (FL) and every street corner had the signs shouting "FRED BUYS HOMES"..."Fast CASH for YOUR HOME!!",..."John's REALESTATE BUYS Homes!!".
Now those same corners have signs that say "NO DOWN Payment!!!, Lease TO OWN!, BAD CREDIT OKAY!!!"
They speculated and they got served!!!
....prepare to add leg to payment..
It worked long enough for you to read this far, though.
Owing more than your house is worth isn't a problem for you. If you could afford the payments last year, you can afford the payments now. The value of your house doesn't effect the monthly payment.
However, if you decide to default, it's a big deal to the mortgage company, who can't sell your house and get their money back.
But if they are smart, they will give you a teaser rate to keep you paying for another year while the market settles.
The firms being killed now are the ones who sold mortgages but had a forced buyback provision. They are being forced to buy back mortgages from companies that don't want to be stuck with them. They can't afford to buy them back, and they can't sell the properties to cover the cost.
So they go bankrupt. At that point, the new holders of the mortgage, who can't sell them back to the originators, can go to the people living in the house and work out terms to keep the payments coming.
but the house in the article is almost certainly NOT a large home.
***
Whether a home is a large home or not has to do with what it costs, in my mind, rather than how many square feet it is. My 2200 square foot (excluding basement and screened deck) home isn't all that large, but it is the largest home my wife and I have ever lived in. We paid $116K in 1988, refinanced once (both loans fixed 15 years term) and paid it off a couple of years ago. It will suddenly become larger when the kids leave for college in 4 years. We earn a little over 150K per year, but we have resisted the temptations to: buy larger houses as our income grew, use the equity to borrow money for second homes, vacations, big cars, etc. We were very worried about ARMs and never seriously considered one. Those who do have to consider the risks. This woman obviously didn't do that, even after multiple loans.
I still don't know why this any of the government's fault or business. There is no way any thinking person doesn't know what he or she is getting into with an ARM.
IOW, she was in a hole that was slowly getting deeper so she decided to dig faster.
While not strictly criminal, whomever gave her this advice not being ethical.
And that example in the first paragraph, what the hell was she thinking?
2.2 million who never should have stopped renting.
I think you are right. I left SI some 50 years ago because I could not afford a house. NJ had no down and 30 years. Houses have gone up maybe 30X since then. House inflation works great as long as there is salary inflation. Inflation + salary stagnation = big problems.
Stupidity is expensive. I'm sorry she's stupid.
What to do? Let the market weed the garden. That's what. Of course, the Keynesians cannot stand that .... wusses, one and all.
"Even if you're in the process with another company, please give us a chance to run the numbers. Even if your FICA score is less than 500, we can probably help you. Just give my 5 minutes of your time. It's the biggest no brainer in the history of mankind" - excerpt of a radio ad played this morning.
SUCKERS!
It's this president and the policies of his administration that forced this poor woman from her ancestoral home. (ahem)
Yes - and she's not the only one.
Apparently, that's exactly how people in these high-priced markets "survive" - they rely on appreciation so they can cash out every other year and use it for mortgage payments. Not everyone does it but enough to be concerned.
Her original loan was $103,000. PITI on a fully amortized fixed loan of that amount would probably be in the neighborhood of about $800 per month. If she had the house 5 years, then the additional $175,000 in negative amortization would have had to equal about $3000 per month. So, not only was she not making the payment with the $1600 per month she was bringing home, she was probably borrowing in the neighborhood of $2000 per month over and above the house payment to buy toys and fancy cars, go on vacations, eat at fancy restaurants and otherwise live the life of luxury.
Are we supposed to feel sorry for her?
Criticize the borrower, if you like, but I can remember a time when someone like her could not get credit.
It's not the housing market that worries me, it's all this crazy lending.
And how does this compare to home forclosures in other years over the past 20 years?
A little bit of persistence goes a long way.
If you tell me you want a fixed, I'll give you one. Same with an ARM as long as you appear financially savvy enough and have enough income to handle the payment increasing.
I'll also make sure you realize that the 1.25% rates other companies advertise are neither fixed nor fully-amortizing. Sometimes people whine and bitch...but what can ya do?
When did you do the loan? Recently?
30 or 15?
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