What Is Happening With Homeowner’s Mortgages?
I’ve been hearing about people going into forclosure because of high mortgages. Does the mortgage rate keep going up, thus the monthly payments are going up to? Is that how home owners are going into forclosure?
Tags: Happening, homeowners, Mortgages
The problem isn’t with conventional 30-year fixed rate mortgages, those rates don’t change once you buy the house. The issue is with Adjustable Rate Mortgages, including Interest-Only and Option mortgages and other exotics, and low down payments.
In an ARM, the rate is fixed for a certain amount of time (1, 2, 5, 7 years, etc.) You may pay 5% for 5 years, then it will adjust based on some index. Some adjust every year. With an Interest-only, you pay nothing on the principle for a period, then it adjusts.
So you could start with 2 years at 5.0%, then a year at 6%, a year at 7.5%, 8%, 9%, etc. The idea behind these mortgages was that you would pay something you can afford for a few years, then refinance into a fixed-rate because your house had gone up in value. Or you would move. You didn’t need a 20% down payment since by the time you refinanced, your house will have increased enough that you would have more than 20% equity. (Buy house with zero down at $100K, in 5 years worth $150K, refi with same mortgage amount but now have $50K equity.)
Wages aren’t going up so fast, and house values are falling. So many people who bought 15 years ago did well with ARMs and are now in affordable fixed rates or new homes. People who bought 5-year ARMs are facing rising rates and homes that are worth less than the mortgage. They can’t refinance, they can’t sell, and they can’t afford the payments.
You know I wonder. And I have been watching for a long time this market.
I see attitudes where people just say well I will foreclose or go into bankruptcy.
The rates have been great for a long time, I wonder if it isn’t time for the banks to stop saying YEAH we will loan anyone money, or brokers to say, YEAH we will find creative ways to make sure ANYONE who signs will get a home.
The fact is, people aren’t being responsible with their money.
The mortgage rates are A LOT better than they were 25-15 years ago… A LOT….
I think people just want more and more.. I don’t think this is the rates fault by a long shot.
I get so sad when I see people say, we are in over our head, after all the vacations, and shopping sprees, and NEW cars, or leased cars… all the electronic gadgets.
Thats just the way I feel.. They think the mortgage is disposable or too easy to get. Throw away society.
Someone tell me if I am wrong.
Those with interest-only loans and adjustable-mortgages are usually the ones who get into trouble. When their payments shoot up, they won’t be able to afford the payment sot hey end up in foreclosure. The homeowners are as much as to blame as banks. Homeowners because they bought houses they can’t afford in the first place. Their incomes cannot shoulder monthly mortgage payments; banks were lending and giving out loans to everyone without checking if these people are qualified for the loans.
They are going into foreclosure for a myriad of reasons, some being:
1: They took out 100% financing, usually 80/20, so they really didn’t show the capacity to save a good chunk of dough to get INTO a house
2: They signed up for variable ARMs that are now adjusting to outrageous rates that they never anticipated
3: They signed up for interest-only loans that are now ballooning, and they cannot get refinanced because the housing market has taken a dive and they are upside down in their 100% financed house..
4: They bought more house than they could afford on the advice of their broker/realtor, only looking at their income at that time or the payment for that time..thinking they would surely still have the same jobs, or same income if not better, and that they would just refi or somehow be able to keep up…
5: Some were really dumb and had these 100% loans but then went above and beyond THAT ( as if that wasn’t enough ) when housing prices were inflated and got a HELOC ( home equity line of credit, much like having a check book to write checks for whatever you want..) of up to 110% of the home value *at that inflated price*. Unfortunately, now the price of their home is nowhere near what they paid OR what their loan balance(s) are, and they are boxed in a pretty ugly situation
6: Some are foreclosing for other reasons too: some have to do with unforseen health issues, people who maybe were making a ton when they bought their house, but have now either lost their job or have taken pay cuts ( especially if they are in a commission driven business )
Then there are the loan brokers and real estate agents who may have pushed through documents, loans etc that should have NEVER gone through. Also, a lot of these loans that are considered sub prime ( loans to those with less than perfect credit, who maybe shouldn’t have been extended a loan for a house until they proved they could handle finances ) were wrapped up and sold to unsuspecting companies, who are now faced with a bunch of junk paper.
What a mess huh?
Buy Now, Pray Later
How much time do you have? There are many reasons. Very loose lending practices is the biggest reason! That is a pretty big umbrella. 2 points that are rarely talked about are increases in TAXES and
INSURANCE. Most politicians will discuss this point.
people are going into foreclosure for many reasons… over buying, gas prices, lower buying power of the dollar. Pick one you will be right