More fabulous RE/Banking news: ARMs are wiping people out.

[JanMichael]

http://news.yahoo.com/s/usatoday/20060403/bs_usatoday/somehomeownersstruggletokeepupwithadjustablerates

25% of all home loans are ARMs? Wow, that's not good. Maybe for the banks?

"Now, the real estate market is cooling, interest rates are rising and tens of thousands more Americans are starting to have trouble paying their mortgages. Nearly 25% of mortgages - 10 million - carry adjustable interest rates. And most of them went to people with subpar credit ratings who accepted higher interest rates, according to the Mortgage Bankers Association."

Here's a powerful reminder to NOT get into one of these time-bomb mortgages:

"When Paul and Sandra Wilson moved from California, where they couldn't afford to buy a home, to Georgia in May 2004, they bought a house with an interest-only loan. But Paul, 52, has had a tough time finding work, and they lost most of their savings in a business venture. They refinanced to an ARM with a lower rate but one that reset every six months and that charges a $20,000 penalty if they refinance within three years."

"The loan broker "convinced us that it was in our best interest, and in most likelihood within six months our financial situation would turn around and we were going to look at selling," says Sandra, 53, a former law enforcement officer who is disabled."

"In less than a year, their loan payment jumped from $2,275 to more than $2,800. The couple filed for bankruptcy and will lose their home next month. "This was our fourth home," Sandra says. "It's not as if we weren't aware, but we'd never had an adjustable-rate mortgage before.""

[hippiechick]

1. $2,200 a month TO BEGIN WITH ??

:wow: No friggin' way !

[Nicholas D Wolfwood]

4. Rent in DC for a 2BR apartment is around that.

[hippiechick]

12. Rent in the metro areas, I can see ... but a mortgage ?

And if the folks in the article are already on shaky financial ground, why in Goddess' name sign a mortgage with that kind of payment ?

I'm in a fairly solid job, a little bumpy credit history, and granted I'm in central IN where the COLA is a tic lower than the coasts, but there is just no way in HELL I'd agree to a monthly payment higher than $700.

[Dr. Jones]

21. No way you'd pay more than $700?

$700 won't rent you a damn 8X8 TENT in most areas of the U.S., including rural America! I'm surprised that you can find anything that cheap nowadays, even in central Indiana.

[Rainscents]

35. Hey, I have very beautiful 2 bedroom (1,000 sq ft) apartment 1/2 block

from sounds in WA! Everything is brand new and I pay, $700.00 a month! I guess, it's depend on the area what you going pay. I am 20 miles from Seattle and there is brand new train commute from where I live to Seattle.

[annabanana]

27. Is that $700 in principle? or principle, interest & escrow?

17 years ago I used to be able to rent a 1 bedroom apt on Long Island for that..

[Dr. Jones]

20. Unless you want to live way out in Manassas or Fredrick

and make the 3-hour Beltway-parking-lot commute into town every day.

No thanks. :)

[Dr. Jones]

23. self-delete

dupe

[Nicholas D Wolfwood]

24. ...and you have to deal with the fact that those towns suck.

I live in a studio in Silver Spring and pay $975/month in rent. It's worth it though, since I can live without a car and am downtown in 10 minutes.

[JackBeck]

These are the numbers I'm looking at for a condo in Jersey.

[lectrobyte]

16. Welcome to the boomtown, Atlanta and suburubs.

I'm not sure how much house they bought, but $2200 / mo. doesn't sound out of line.

[Dr. Jones]

26. And guess who built those homes?

Hint - they weren't LEGAL AMERICANS doing the "jobs Americans will not do..."

:hide:

[Missy Vixen]

19. Welcome to the Puget Sound

If you don't buy a house, the IRS will be more than happy to take ALL of your available cash.

If you do buy a house, get ready for (at the very least,) a $1500 per month mortgage payment.

The median price for a house right now in the Seattle area is $375,000. The condo we bought eleven years ago for $133,000 (and sold six years ago for $180,000,) is now valued at over $250,000. There are 1500 sq ft, 3 bedroom, 2 1/2 bath condos in that same neighborhood right now going for $375,000 as quickly as they hit the multiple listings.

Julie

[Richard D]

2. Rules of borrowing . . .

1. Don't
2. If you disobey number 1, never, ever, ever, never, take a loan based on the idea that "things will be better in the future and I'll be able to pay more."
3. Carefully review number 1.


Been there, done that, won't do it again.

[BOSSHOG]

6. Excellent advice

And always save money on at least a monthly basis even if its only a few bucks. I spent years as a financial counselor and young Sailors made so many stupid mistakes with their money and the bottom line was too much borrowing (on stuff they didn't need but wanted) and not enough saving because they thought saving a few bucks a month was not enough.)

[BOSSHOG]

3. Avoid ARMS

and HELOC's (home equity line of credit) if at all possible. Shop around for a mortgage rate. And always keep an eye on current mortgage rates for an opportunity to refinance; and then plan on paying the amount you previously paid by adding money to the principal. The only way I'd get a HELOC is if I were on my death bed and my home were paid for.

[stop the bleeding]

5. 30 year fixed at 6% for me and my lady,

we were offered an ARM, but we figured in the long run it would end up costing us a leg.

[BOSSHOG]

Excellent

May I suggest you cuddle up with the money section of the Sunday paper and keep an eye on current mortgage rates. Stay with the fixed rate but if you can get 5% or less, jump on it. It may not happen but if it does and you have more than 25 years on your mortgage it may be worth your interest. And throw a few bucks more towards that principal balance every month. Good luck in your financial planning.

[stop the bleeding]

14. Yeah I make the money, but my lady is in charge of managing it

and paying the bills, since she is better with it than I am we have been able to pay an extra 2 payments per year towards the principal. As far as getting a 5% rate that may be a little rough, but hey we are always keeping one eye on the prize. ;)

Needless to say buying this house was one of my better decisions in life, but my best one is my lady.

Peace!

[Virginia Dare]

8. Same for us..but this is going to end up hurting all of us in the end...

this is just the nail in the coffin for the middle class.

x(

[Media_Lies_Daily]

7. If you have to get an ARM, make sure that you get one that has...

...a fixed rate for at least three years before it begins to jack up the payments. That will give you time to either sell that home and get into one with a fixed rate, or refinance into a loan with a fixed rate.

That six-month reset ARM should be investigated by the proper authorities.

[mtnester]

22. 3 year or 5 year...PLUS restrictions on how much it can go up lifetime

or annually.

Ours is a 3 year fixed, with a MAXIMUM of 2% lifetime increase. The most we could pay? 7.25%

What we did was pay extra on the premium in addition to our monthly regular payment, so if there was an increase, then we would owe less on our house, and it would be a wash. We expect an increase next month in the rate, however, we have reduced the amount owed enough that our house payment MIGHT go up $50.00 a month....or not.

We have used ARMS for years..you just HAVE to be educated on them and not over-extend just because you have a great rate for 3 years. I mean, if you cannot afford to buy a $300,000.00 home on a fixed rate, WHY would you think it is OK to purchase it on an ARM?

There are a few new home builders in our local area who are now under investigation for their lending practices...ARMS on the interest only for 3 years, THEN, balloon payment and new rate on the entire thing. People who were paying affordable less than $1,000.00 per month payments on new homes saw their payments balloon to almost $2,000.00. Result? Foreclosures out the wazzoo!

Now, there is NO excuse for not reading your contract, however, mortgage document, like all legal documents, are designed to confuse. BUT, there is no excuse for not paying attention, or getting legal counsel over a mortgage/home purchase contract.

Moral? know what you are getting yourself into...do not let someone else tell you what the best deal is..find out yourself!

[lovuian]

32. I agree that is such a trap!!! especially with people on the

edge...

[Gormy Cuss]

9. It's the subprime market that will cause the biggest problem.

Too many desperate or gullible people bought the sleazy sales pitches of subprime lenders. A 20K penalty for refinancing is a red flag. It's a shame because they will be the ones losing the most when they walk away. Real estate investors will just shrug, take a tax write off and move on.

on edit:

I second Bosshog's advice. Save something every month, even if it's just a dollar. It's also usually better to sit on a slightly above market fixed rate loan than refinance every year because of closing costs. As for HELOCs, when we refi'ed last year they offered us a line that was so big I asked the banker if he was kidding. No wonder people think they can afford to do lavish remodels and buy new cars using the line of credit.

[eleny]

10. They planned on selling in six months?

I'm shaking my head. I mean - why bother buying? Seems like their situation called for renting not buying.

Btw, a while back Bernie Ward was talking about the housing situation in San Francisco. He said that the majority of loans there are the interest free variety. It could be a sad disaster there.

[Dr. Jones]

11. People will be PISSED when they find out they've been LIED TO.

Bankers, realtors, all had been pushing us to purchase homes. "Get in NOW," they said, "Before it's too late." They have been LYING to us from the get-go, all for the sake of their precious money and for continuing the "great economy" mirage.

Of course it's a bubble, there's no denying that. Sad thing is, people never learn. 1929...2000...people never learn when to identify a bubble and stay away from it. But this thing's gonna blow, and when it does, WATCH OUT.

[specimenfred1984]

30. It's already happening here in the D.C. area

as I'm sure you are aware of. I recently checked a realtor's website for homes and townhomes for sale in Gainesville, VA and got 1000s of hits.

Anyone who buys now is going to be just 1 of the 1000s who get stuck with a huge amount of debt, even if their mortgage rate is temporarily low. A house near me is selling for $1,300,000. They are offering financing at 3.875% 1st year, 4.875% 2nd year and 5.875% years 3-10. That's a huge mortgage payment that goes up 3 years in a row and here's the big if: what if that house is only worth $1,100,000 in a year to 3 years?

That buyer will be sitting on a $200,000 loss and a huge monthly payment, not to mention the addtional costs of maintaining the place. There are a lot of homes around here like that, it's not unusual. I don't feel sorry for the rich sucker that gets stuck with that debt but there aren't that many rich people in any town in the country. This bubble is being fueled by massive speculation that is very easily shown to be way ahead of incomes in most areas.

I think the real bad rush to get out of these homes will start happening this summer.

[BlooInBloo]

13. I hope every republican voter gets dinged by this.

You deserve what you vote for.

(I'm talking about the pro-business, anti-consumer new bankruptcy laws.)

[Nimrod2005]

15. I have an ARM, started at 5.18%, now at 7.13%, only 18 months ago...

I am able to afford the higher monthly payments, but what bothers me BIG TIME, is that my rate right now is higher than one could get on the open market for a 30 year fixed...The whole damn idea for an ARM is to have lower per month payments, not HIGHER!!!

I called them to bitch, basically they don't care, in fact they want me to get mad and refinance, because I have a $16K cost/penalty for refinancing before the 36 months limit we have.

All in all, I knew what I was getting into, and I knew I could afford higher payments if I have to, but don't like to be paying more than market price, I have 18 more months to go like this...I started paying more toward the principle every month...I am hoping 18 months from now, I can refinance into a fixed rate, my balance will be much lower, and I can live happily ever after...


Peace!

[bigscott]

17. i pay $2200 per month

for a $240,000 mortgage - on a 340,000 house - includes insurance and taxes (combined $425 each- NOT PMI, homeowners insurance)

[warrens]

18. Wait til the rest of the country sees what happens to house values

Throwing a few million foreclosures on the market for whatever they can get is going to do GREAT things for the housing market. I've actually heard Wall Street financial types saying you should rent and put your money somewhere else. In truth, despite the latest bulge, housing has been a very poor investment over the years.

[MissB]

25. Twenty-five percent????????

:wow:

[Wcross]

28. I have a 399.00 payment for the next year and then.......

....I will be debt free! It isn't the nicest house in the "best" neighborhood. It is a 680sqft house on 15 acres in rural Tennessee. I have no neighbors and its very quiet!
I guess if you HAVE to live in a McMansion then you ought to be prepared to pay for it.

[Earth_First]

29. My fiancee will purchase land in the next year in cash...

and build our 967 square foot home ourselves with a recycled kit home that will cost us a smidge over 19,599, purchased with cash.

We will NOT be indentured to a mortgage.

[newportdadde]

31. Interest only and ARMS when prime is lowest in 30yrs = incredibly stupid.

I can't believe 50 year olds would be so naive.

Seriously what the hell were people getting ARM the past few years thinking? Prime was lower then it had been in decades it could only go up. If your situation is so dire that you need to purchase a home using interest only loans or ARMs then perhaps it should be a hint for you to NOT PURCHASE A FUCKING HOUSE.

The safest and most secure way to purchase a home is via a 30 year fixed mortgage with 20% down. If you can't hold your pocketbook closed up till you get 20% then by all means buy with 5% down or 10% and let PMI(ie we fuck you because you don't have cash down) take advantage of you.

Middle 2000- bought home at 8.5% fixed, 20% down - 30 year, lived like paupers to get down payment in a crappy small apartment.
Beg?? of 2002- refied at 6.25% fixed - 30 year.
July 2003 - refied at 4.75% fixed - 15 year. House will be paid off in Sept 2011(yeah I'm counting down daily), I'll be 34.

[patcox2]

36. Yeah, but Greenspan publicly encouraged it.

When rates were at historic lows, Greenspan made a public statement that more people should look into ARMs. It was incredible.

[dogday]

33. It's an incredibly good deal for the mortgage companies

For just a few years of loaning money, they get the down payment, all the payments this woman has made in that time and now a foreclosure to boot.... All in a day's work for the banks.....:sarcasm:

[lovuian]

34. Yep getting real estate for cheap

Ask yourselves Americans do you feel better after 6 years of republican rule...

[Rainscents]

37. I had cute condo (8 years) 800 sq ft and my P&I was $511.00 a month

I had to move because of Job transfer, so I sold it and got real good cash out of it. I'm glad, I did now. I choose to live in apartment (privet owner) and I been real happy!

I feel sorry for many people who got sucked into this Arm loan deal.

[cantstandbush]

38. Damn it!! Isn't there any "GOOD NEWS" from America today? n/t