Mortgage crisis in the US...

[brownsfan019]

I'm sure everyone has read about the mortgage 'crisis' that is hitting the US, but I take a step back and say 'no kidding!'.

Allow me to explain...

About 3-4 yrs ago I purchased the house I currently live in. Interest rates were so incredibly low, it was great. IF YOU HAD A BRAIN. Low teaser rates were advertised EVERYWHERE - tv, radio, internet, etc. - with these low teaser rates that common sense would tell you could not stay that low. I remember seeing ads for 2%. TWO PERCENT.

Now, anyone with a little common sense SHOULD have thought... wow, great rate, but WHAT'S THE CATCH? Well, the catch, as we all now see is that these rates are skyrocketing on people.

Here's the gotcha - people were taking loans with monthly payments that they could barely afford at the TEASER rate. Now, with everything that is going on in the mortgage biz, people are freaking out.

I bring this up, b/c the local paper here in Cleveland finally ran a story on it. It was FRONT PAGE. Here's the link to the story - http://blog.cleveland.com/plaindeale...hits_home.html

I just sit here and think... what did you people think? Your rate was going to stay at 2% or 3% for the life of the loan? Give me a break. The paper is trying to play this up like it's the mortgage co's fault, and while they are to blame as well, there is some accountability needed here. If you get a teaser rate, whether it's a credit card or home loan, you need to read the fine print. End of story.

Anyways, looks like there will be some nice home bargains in the Cleveland area soon.

[Reaver]

Yep.

That is why one should generally make it a practice to actually read a contract in a business transaction involving hundreds of thousands of dollars.

I hate when people try to seek someone to blame for them being an idiot.

Everyone makes mistakes, and when you do, it's YOUR OWN FAULT.

[brownsfan019]

Unfortunately Nate, it's much easier to just point the finger at someone else.

[The Bear]

Brown....i'm curious about this situation in the states right now. Are home values actually going down? Or is this mainly a problem with the mortage companies. I wonder if this problem would spill over into the Canadian real estate market.

[Reaver]

	Quote:	brownsfan019
	Unfortunately Nate, it's much easier to just point the finger at someone else.

Yeah you're right about that.

It is the same mentality that allows one to break into someone else's home and get attacked by their dog and sue for damages....and win....

The victim mentality/entitlement complex runs rampant these days.

:frustrating:

[brownsfan019]

	Quote:	The Bear
	Brown....i'm curious about this situation in the states right now. Are home values actually going down? Or is this mainly a problem with the mortage companies. I wonder if this problem would spill over into the Canadian real estate market.

Bear,
The biggest issue right now is people's mortgage payments going up more than they anticipated (or even considered to begin with) and now their payments are going up more than they can handle. Property values are suffering as a result since now is a 'buyers market'.

It's an interesting situation to say the least and will be a good one to watch going forward. Some in gov't are calling for the federal gov't to step in and stop this mess from getting worse. I'm not sure what they can do to fix this, but it's bad.

Time will tell.

[Soultrader]

Hi browns,

How exactly does this work when mortage rates are going up for home buyers. Was the 2% not a fixed rate but an interest rate adjusted floating rate? Was there any deals at that time when mortage rates were fixed?

I know a few people straight out of college about 2.5 years ago who purchased a home in Chicago on a 30 year loan. Im curious to know what happened to buyers like them.

[brownsfan019]

James,
Most of these buyers received a 'teaser rate' - a very low rate that was set for a short period of time (usually no more than 5 years) and after that teaser rate was adjusted 'accordingly'. Well, if you got a 2% rate, I can pretty much guess which way that rate is going when it needs to 'adjust', right? And these adjustments are causing people to be late on the mortgage or just unable to meet the new payment period. Which of course then leads to foreclosures and the domino effect from there that we are seeing now.

Most of these mortgages here are referred to as a ARM - Adjustable Rate Mortgage. Even in the name of the loan it tells you what may happen.

[brownsfan019]

Also, I should note that the ARM is just one option available when getting a mortgage. Not everyone in the US has one, just those that were looking for a very low monthly payment @ the start of their loan. I just have a simple 30 yr fixed payment. Difference being that I was paying more initially than those with an ARM and now my term and rate looks like a bargain to those with an ARM.

[darthtrader]

It basically was a chain reaction in the hot markets. Rates got so low it brought in more and more buyers, then speculators then at a point I imagine property out west got so out of hand that people would not have been able to get in the house without an arm. You also have to figure that if you bought a house in 2003/04 in these markets you were probly up 100% by early 05. I'm sure that gave people confidence that even if the rate went up they could just sell at a profit.

Not everywhere experienced this though. In western ny here property really hasn't gone up much at all. a starter home out west is 500k, that puts you in the biggest houses around here.

i wish i had bookmarked it but i found a double wide trailer for 200k on here a few weeks ago
http://www.seattlepowersearch.com/

Most arms were 5 years, considering the big buying spree didnt happen until 03/04 we havent even started the resets yet.