Friday, December 09, 2005

Get Ready for a Storm of Law Suits?

This article made me shake my head and sigh. There are a ton of people out there "buying" houses using only IO or NegAm (or other "exotic") loans because it is the only way that they can afford to buy. Then they find out that their monthly payments skyrocketed after a year or so and now they can no longer afford their mortgage. So like any good American citizen these days, they call a lawyer and sue the lender.

I'm sorry, but if the only way you can "afford" to "buy" a house is by using one of these "exotic" loans, then you really couldn't afford to buy it in the first place. Ignorance of the terms of the loan is no excuse as it is your responsibility to read the loan agreement. Am I wrong? If so, let me know and put me in my place.

And rumor has it that here in Marin something like 80% of all loans are of the "exotic" type and probably more than half of those are not to the über-wealthy who just want the tax benefits. As people's monthly mortgage rates begin to change over, get ready for a lot more of these sorts of stories in the news.

Some choice quotes:
"One reader wants to know what to do if his mortgage payments skyrocket next year. That's because he has an adjustable rate mortgage with negative amortization -- the monthly payments aren't enough to cover the monthly interest owed, the result being that the additional interest gets tacked on to the principal due."

"Under such a scenario, even if mortgage rates don't change, his monthly payments likely will rise. Many adjustable-rate loans with such a negative-amortization option -- meant to help borrowers qualify for the loans -- eventually adjust the payments to recapture the lost interest."

""This is the only way I could afford to buy a house...""

"A lot of people are in the same boat. They've signed onto an interest-only payment mortgage or a mortgage with negative amortization because it was the only way they could qualify for a home loan."

"To be sure, initially, monthly payments with these mortgages are significantly lower than monthly rent. But unless the home price appreciates greatly and the buyer is thinking about selling fast, such loans rarely make a lot of sense."


Anonymous Anonymous said...

"This is the only way I could buy a house"

It is as if people think someone is putting a gun to their heads. One could point the finger at the lending industry but as a borrower, if you don't do the due diligence and look at the MAXIMUM payment on your loan docs (that is, prior to close, which must be disclosed) or somehow justify that spending 50% (or more) of your gross income on a mortgage is OK, then you get what you deserve, IMO.

Dec 9, 2005, 2:19:00 PM  

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