Payback looms on adjustable-rate mortgage spree

[stevebreeze]

Overspending is a social ill generated by the poor wage situation for most people, lack of regulations, and lack of government oversight. Rates are going up not because of real current inflation but because government debt will come due in one way or another. Either we pay the taxes needed to run the government or we pay by weakening the dollar. Both scenarios those in the bottom 90% are harmed far more then those in the top 10%.


From the Chicago Trib.
<snip>
Millions of cheap, teaser-rate mortgages that people took out a few years ago, when interest rates were at rock bottom, are about to become much more expensive.

More than $1 trillion in mortgage debt costing only 4 percent or so--rates locked in three years ago--is about to soar in price, to nearly 8 percent in some cases.

With consumers already stressed by credit card payments, high gas and electric prices and meager raises, economists worry that the mortgage changes will put a new crimp in retail spending and perhaps lead to more defaults.
<snip>

more here http://www.chicagotribune.com/business/yourmoney/sns-yourmoney-0416mortgages,1,7676245.story?coll=chi-business-hed&ctrack=1&cset=true

[FloridaPat]

1. Why did anyone think adjustable rates were a good idea? Unless

they were going to pay off the home in a couple of years maybe. Under Reagan, (or end of Carter's term), the mortgage rates went to 22%. Young people borrowing or others with bad memories?

[cliss]

2. Yes, I remember those days.

"The Great Wash-out" is what we call it. Here in Oregon, we had many friends who simply walked away from their mortgages. They simply could not afford to pay 17%, 18% interest rates.

It's amazing: they're doing it again. Only this time, I think it's much bigger than the last time, and the refinances are larger.

C'mon guys. That mortgage broker with slick-combed hair and a big diamond ring on his index finger is not your friend.

[madrchsod]

5. my parents owned their home outright

and made a ton of money during the late 70`s early 80`s. they bought notes at 1000 to 2500 increments and rolled them every 6-12 months and made enough to buy another house and have enough to live comfortably after they retire in their 70`s. my mom and dad never made over 15 dollars an hour between them their entire working life... my mother was very good with money.
"the great wash out" is really a good description of those times. i never found work for over 8 years so i had to reupholster furniture while my wife worked for the insurance. those were not pleasent times but these times are worse.

[Warpy]

3. Most ARMs are capped, but I understand the paper can be sold

to a different lender and the cap raised. ARMs were the way young couples could afford enough house to keep the kids in separate rooms. They were the way marginal buyers could get into the market.

If they're making payments on an SUV they bought for safety and living in the exurbs to have a yard for the kids to play in, they're really screwed. These aren't bad people, they were just trying to get the American dream on artificially low wages and they will get nailed.

It's hard not to feel sorry for them.

The real foreclosure bait are those interest only loans paid by people who expected to flip their houses for obscene profits within 5 years.

[FloridaPat]

6. You're talking about the young ones who weren't here for Reagan's

fiasco. I can understand them. It's just not fair that people should be taken advantage, especially by our own gov't. Remember when Greenspan came out and told people now was the time to get into ARMS? Creep.

As for the flippers - that's a business with risks. Real estate has always been like that. You can make big bucks or loose big bucks. Them I don't feel sorry for.

[swatterdebattedelune]

4. adjustables can be a very good product

people are confused about adjustable mortgages. not all float the next year. 5-1 or 7-1 mortgages are fixed for 5 or 7 years, then float according to the indexing rate, ie libor or treasuries. as most people only own their home for on average 6-7 years, many of the adjustable or arm products actually fit with their duration of ownership. if they bought 30 year fixed money, they would have over-paid with a higher interest rate. this is especially the case for young families who will grow out of their home. the savings are real. i'm not a mortgage broker. i think interest-only and other crazy products are too speculative, but essentially it is caveat emptor, buyer beware.

[spag68]

7. Mortgage rates

To think that my father in 1952 had a 3.45% loan on our house and thought If he didn't pay it off in eight years, we would go broke!!!!