More Trouble Could Be Over the Horizon for Homeowners

[erpowers]

Democracycy Now is reporting that a new set of loan agreements could cause a rise in foreclosures. According to the Democracy Now website it appears that new homes buyers are being allowed to get a new type of adjustable rate mortgage. This type of ARM is called an Option Adjustable Rate mortgage and it allows the borrower to pick their interest rate before the rate resets. It is also being reported that a report by Fitch Rating claims "134 billion dollars in ARMs will “reset” over the next two years. Mortgage payments would then rise an average 63 percent, or over $1,000 dollars, each month." It is believed that this could cause the rate of foreclosures to increase.

This is really sad. First, you would think that after this country had just been through an economic crash, partly caused by ARMs, people would not want to go out and either get the same type of mortgage or a similar type of mortgage. OARMs almost the same as ARMs. The only difference, as far as I can see, is that with the OARMs the individual gets to decide the starting interest rate. the rest is all the same. Second, I wonder if Congress should either ban ARMs, or at least make some strict regulations concerning who can get an ARM and when they can get one. As far as I know the only people who really need ARMs are those who expect to pay off a mortgage on a property sooner than the amount of time given to pay off the mortgage in that it is possible a person could be penalized for paying off a fixed rate mortgage before its due date.

[beyurslf]

1. Anyone not planning on moving or seling 3, 5, or 7 years should not get an ARM unless

they reasonably believe that rates will be significantly better in that time.

[Auggie]

2. Many of these originated in California,

back in 2005/2006, when real estate was booming. Homeowners figured to make a quick killing -- stay in the house a few years then sell for a profit. And then the bubble burst. I know a few people caught up in this. Middle/Upper middle class, who despite their higher incomes, are scared shitless. I'm sure there many speculators out there as well.

The increase in California home prices from 2001 to 2006 was astounding. My house increased nearly 100% in five and a half years. The only way people could afford homes -- even the middle/upper middle class -- is with reckless mortgages like these.

[notesdev]

3. This is not new

This was part of what made the bubble as big as it was.

Pay-option ARMs are the worst
Interest-only ARMs are next
Regular ARMs where the borrower was counting on selling at a higher price aren't much better off

Then you get all the more traditional mortgages which are now going under because the borrowers are underwater on equity and losing their jobs...

This is going to be ugly, some serious long-term ugly.

I for one would like to see a raging mob of dispossessed ex-homeowners march down to Wall Street and put the place to the torch. Until that happens, count on more of the same.

[ProdigalJunkMail]

4. ok...something i don't understand and hope someone can explain to me

when purchasing a home using an ARM years ago...some friends got a decent rate. However, NOW interest rates are LOWER than they were when they purchased the home and their ARM is ready to adjust and somehow their payments are going UP??? How the hell does that make sense? Now, I don't have the contract in front of me...but it just sounds weird...

sP

[tjwash]

5. You agree to the rate when you sign, it is independent of what the prime is.

And, back then, they signed on the line agreeing to the higher rate.

See, the issue with ARMs, is that they were never meant to be real mortgages. The hook is...to get people salivating at the very low payments for the first 5 years. They attracted people that could not afford to make the fixed payments for 15 or 30 years in the first place, or, it convinced them to buy the 6 bedroom mcmansion that they couldn't afford, instead of the 3 bedroom single family home that they could afford in the first place, because of the low payments.

The middle-men, which are the loans brokers are like car salesmen. Commission driven sales folks that really don't care. They just want to say or do anything to get you approved and a nice fat check for themselves cut.

And while they dazzle someone with the sales line...they concurrently say that "oh you can just refi it before it adjusts...no problem...sign here." Then when it comes time to adjust, the banks crunch the numbers and tells them..."No. You couldn't afford a 30 year fixed rate 5 years ago, and you can't afford it now...denied."

The problem is, that ARMs where never meant to be traditional mortgages. The people who traditionally took out ARMs, were speculators with plenty of capital backing them, that could buy a place, fix them up, and sell them at a profit quickly, BUT, also be able to make payments after it adjusted, if the market was down, or, if they they could not sell it for a profit, they could sit on it and make the payments while the market went back up, and then make a profit. They were always considered high risk loans, for both the banks, and the people that took them out. They were never meant to take the place of homeowner style fixed mortgages, but a group of predatory assholes figured out that they could make a bunch of money short term for themselves by doing it, and it became a real rage for a while.

Then they bundled the riskiest ones up into mortgage backed securities, and sold them to different countries...and it just snowballed from there.