Many of you have already heard the news, Subprime loans are going to be the death of many a lender. Many subprime borrowers are beginning to default on their loans and there too many defaults for the market to absorb.
Other reasons are rising interest rates and declining home prices. This makes it difficult for those with ARM’s that need to refinance to do so.
Here’s a short article from MSN that summarizes it all pretty well…

Subprime lenders, or lenders to people with poor credit ratings, were slammed Monday, with the top five each losing more than 25 percent. Recently, major financial institutions such as HSBC Holdings PLC have been taking writedowns on mortgage loans as a growing number of subprime borrowers are delinquent or in default…. full article

Selena Maranjian wrote an article on Fool.com that is a very clear description of a possible (and likely) impending mortgage crisis. Of course most of us have heard this warning time and time again but it’s worth revisiting if not for the simple fact that the more we understand about the ARM crisis the quicker we may be able to help ourselves, families, and friends recover from bad mortgages.

…and rates are rising, there’s the potential for a lot of heartache. So says a report from ACORN, the national community advocacy group, titled “The Impending Rate Shock.” It pointed out that about 75% of subprime home loans were ARMs. Folks who likely aren’t flush with funds face steeper housing bills in the near future, according to the report: “Rate shock could mean a sharp increase in foreclosures in some of the urban and minority communities that most need to build wealth through homeownership….” Plenty of others are affected, too — roughly 24% of all home loans nationwide are ARMs.

Full article here

Technorati Tags: Budgeting, Debt, Mortgages, Real Estate

With the news of rising interest rates, an increased amount of homes sitting on the market, and a reduction in recorded sales prices many people are beginning to feel that there is no where to go for affordable homes or good real estate investments. I’m here to tell you that there’s hope! There are parts of the country not beset with over inflated housing prices. Places where land – the thing that ultimately drives up the cost of homes – is still very affordable. And I’m not talking about small towns either. How about Austin, San Antonio and Lubbock? (Wait a second. Aren’t all these towns in Texas?) These communities have thriving universities – Lubbock has 50,000 full-time students – vibrant arts scenes, fantastic medical care, temperate climates and good transportation infrastructure.
I was recently in Lubbock and was shocked to see what kind of home you could purchase for $350,000. Let me just say this

In Phoenix, AZ you would pay more than twice that amount for the same home. In California potentially as much as four times!

So what are you all waiting for? Are the coastal regions that great? I suspect that as families with adjustable rate mortgages start to get into the adjustable parts of their mortgages cities such as these are going to start to look extremely attractive!

New subdivision selling 1-acre lots in Lubbock for $45,000

Technorati Tags: Finance, Finance Tools, Investing, Mortgages, Real Estate

In case you didn’t notice mortgage rates have been on an upward trend. The obvious implication is that anyone who doesn’t have some sort of a fixed rate mortgage will soon see – if they haven’t already – an increase in their monthly payments. Some may even see their monthly payments double! I personally know of at least four families who have 2/28 arms. These are loans that are at a fixed rate for two years and then begin to adjust every year after. I believe these loans can adjust by as much as 2% per year based on whether or not rates are rising. Because people tend to buy as much home as they possibly can afford based on the introductory interest rate they are most likely in trouble unless they refinance soon at an affordable fixed rate loan. Another very common scenario is the one in which a buyer will purchase a home with a low rate interest only ARM. Most of these loans are fixed for a three to five year period and then begin to adjust. When I’ve asked people what they plan to do with these loans once they begin to adjust they commonly say things like, “Oh. I plan to sell the home before that happens.” or “I’ll just refinance!” The problem is that in a soft resale market – much like Phoenix is right now – it may not be that easy to unload your home in the event you can’t debt service the newly adjusting mortgage. The other option, doing a mortgage refinance, can be tricky as well for some people. Especially if they (and their pocketbooks) have grown accustomed to that low monthly payment. So what’s the solution?

1. Don’t buy more than you can afford on a 15 or 30 year mortgage.
2. Don’t try to predict where mortgage rates are headed. Your financial future is not worth the gamble.
3. If you have a crummy loan contact a mortgage broker immediately and ask about a mortgage refinance to a fixed rate loan.
4. Tell you friends and family who have crummy loans to do the same.

Technorati Tags: Budgeting, Debt, Finance, Finance Tools, Mortgages, Real Estate

Almost every person reading this probably has a personal experience with someone (or themselves) who have financed or re-financed their home with an interest only adjustable rate mortgage. What is an interest only ARM? Basically it’s a loan where you pay only the interest on a loan that will start to adjust after a certain amount of time. Typically 3-5 years after the loan is originated. What’s so risky with these loans? Well, if you don’t know by now you haven’t been reading the news. (Not that the news is always right mind you.)
But just for the uninformed let me give you a worst case scenario: Bob desperately wants that beautiful new rambler on the corner lot. Problem is he can’t afford it on his salary with a fixed rate 30-year loan even though 30-year rates are some of the lowest in history. What to do? Well Hello there Bob! Why not take out a 2.7% interest only 5 year ARM? Surely you’ll be able to refinance after your salary goes up or you’ll sell if it looks like you’ll have trouble making the payment. Right? Well, perhaps not. By the time Bob gets towards the end of his fixed rate period that he has enjoyed for almost five years the real estate market has cooled and no-one is really interested in purchasing his home. What’s more, his income hasn’t gone up enough to cover what will amount to almost a doubling of his monthly payment! All of the speculators have moved on and it’s a buyer’s market. So what does he do? He goes into foreclosure that’s what! (Keep in mind this is a worst-case scenario but still highly likely and beginning to happen in some local markets.)
For more information take some time to read the Business Week story on this issue:

Why is the surge in interest-only mortgages so frightening? Because many people are using them to buy houses that they couldn’t otherwise afford. The monthly payment on an interest-only loan is lower because there’s no amortization of principal. So people can qualify for bigger loans and buy bigger houses. The availability of such loans has probably contributed to the upward spiral in home prices, as shoppers armed with cheap financing try to outbid each other for choice properties.

A Growing Tide of Risky Mortgages

Here’s a suggestion: Go to RateState.com to get a free comparison quote for a 15-40 year fixed rate mortgage if you find yourself in Bob’s position.

Technorati Tags: Debt, Finance Tools, Mortgages