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Karl is this true?

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  • Karl is this true?

    <P class=MsoNormal style="MARGIN: 0in 0in 0pt"><SPAN style="FONT-SIZE: 10pt; COLOR: #1f5080; FONT-FAMILY: Verdana">Nightmare Mortgages
    They promise the American Dream: A home of your own -- with ultra-low rates and payments anyone can afford. Now, the trap has sprung <BR style="mso-special-character: line-break"><BR style="mso-special-character: line-break"><?xml:namespace prefix = o ns = "urn:schemas-microsoft-comfficeffice" /><o></o></SPAN><P class=MsoNormal style="MARGIN: 0in 0in 0pt"><SPAN style="FONT-SIZE: 10pt; COLOR: #1f5080; FONT-FAMILY: Arial">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.<o></o></SPAN><P class=MsoNormal style="MARGIN: 0in 0in 0pt"><SPAN style="FONT-SIZE: 10pt; COLOR: #1f5080; FONT-FAMILY: Arial"><o></o></SPAN><P class=MsoNormal style="MARGIN: 0in 0in 0pt"><SPAN style="FONT-SIZE: 10pt; COLOR: #1f5080; FONT-FAMILY: Arial">The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created. With its temptingly low minimum payments, the option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have otherwise lasted, especially in the hottest markets. Suddenly, almost anyone could afford a home -- or so they thought. The option ARM's low payments are only temporary. And the less a borrower chooses to pay now, the more is tacked onto the balance.

    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.

    There was plenty more going on behind the scenes they didn't know about, either: that their broker was paid more to sell option ARMs than other mortgages; that their lender is allowed to claim the full monthly payment as revenue on its books even when borrowers choose to pay much less; that the loan's interest rates and up-front fees might not have been set by their bank but rather by a hedge fund; and that they'll soon be confronted with the choice of coughing up higher payments or coughing up their home. The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-comffice:smarttags" /><st1lace w:st="on"><st1:State w:st="on">New York</st1:State></st1lace>'s Ford Foundation. "It's going to kill all the people but leave the houses standing."

    Because banks don't have to report how many option ARMs they underwrite, few choose to do so. But the best available estimates show that option ARMs have soared in popularity. They accounted for as little as 0.5% of all mortgages written in 2003, but that shot up to at least 12.3% through the first five months of this year, according to FirstAmerican LoanPerformance, an industry tracker. And while they made up at least 40% of mortgages in <st1:City w:st="on">Salinas</st1:City>, <st1:State w:st="on">Calif.</st1:State>, and 26% in <st1:City w:st="on">Naples</st1:City>, <st1:State w:st="on">Fla.</st1:State>, they're not just found in overheated coastal markets: Through Mar. 31 of this year,
    The same type of thinking that created a problem cannot be used to solve the problem.

  • #2
    RE: Karl is this true?

    The main article?

    Yes and No!

    Yes: Some persons who took out MTA - Option Arms - Interest Only - Adjustable Loans will have problems.

    No: There is always a percentage ofborrowers who will have problems. That, ofcourse, includes persons who have taken out fixed rate 30 year loans.

    The key to the type of loan the borrower should take out lies in answers to these questions:

    i) How long do I intend to remain in this house/own this property?ii) Whatis the over-riding purpose for purchasing this property? iii) What can I afford?iv)What is best suited for me?

    ...and, it all boils down to - if 'it' does not make sense, do not do 'it'!
    "Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has."

    Comment


    • #3
      RE: Karl is this true?

      I thought it better to answer the other questions raised in a different post -a) Are there some retail banks, mortgage banks and mortgage borkers out there who sell loans to persons who do not understandexactly what they are getting into?

      I would think so. I have heard it said, 'the customer who comes to the broker for a mortgage loan andthe 'pluses and minuses' of that particular product recommended to that borrower by a friend or family member is explained too often result in theborrower turning tosomeone who just gives what is asked for'.

      I have had that happen to mealso. Some brokers think showing the potential borrower the pitfalls just results in the potential borrower going elsewhere.

      My experience issome of those who go elsewhere and get into trouble eventually return to me to discuss a 'rescue'. Sometimes it is possible to improve their lot...sometimes it isjust an 'unfortunatelyI cannot help now'.Both the borrower andI lose. I lost out earlier on helping someone and makinga commission.The borrower loses by missing out on a good dealand now has afinancial position turning'bad' and or is in the process oflosing his/her property.

      b) Are there 'bad' persons out there in the mortgage business?

      Yes! There arebad personseverywhere. Why would one expect that there are not bad persons in thebusiness of originating and lending money for mortgages?

      c) Loaning funds with the aid of fraudulent docs?

      I believe it is prevalent in good times and during bad times. Yet, the reality is there are so many different mortgage banks willing to lend with little or as some term it 'lite docs loans' and or provide 'true no doc loans' there is no reason to use fradulent docs.

      NB: The important thing with the 'lite docs' and or 'low docs' is pricing. These loans cost the consumer much more than the usual conforming or non-conforming loans. Those 'lite docs' and 'no doc' loans are expensive.

      PS: All Loans - In the long run the consumer must keep in mind that - the economists say, you lease the money - you are buying the money (my term).In thinking on the loan - You pay for the loan product you purchase. Some loan products are more expensive than others.

      All the products are good if it is the prudent way to go! Remember - If ''it'' is not good for me, don't do ''it''!

      If it does not make good financial sense to take out that loan, leave that loan alone!
      "Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has."

      Comment


      • #4
        RE: Karl is this true?

        ok make sense - thanks
        The same type of thinking that created a problem cannot be used to solve the problem.

        Comment

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