May 09, 2006

Time Magazine: The Mortgage Mess


So many were seduced by the siren song of the NAR, their realtor, the media and that mortgage broker. So many got themselves into a home that in the end, they can't afford. And so many will be saying goodbye to that home - through foreclosure or through fire-sale pricing.

The Great Unraveling is underway.

The end may be just the beginning. After 15 hikes in less than two years, the Federal Reserve has signaled that it has probably finished bumping up interest rates, but for people who borrowed heavily to buy new homes during the recent boom, the damage is done.

Those hugely popular adjustable-rate mortgages (ARMS) have always had a catch--the low initial rates last only a year or so--and the new terms are now kicking in for the latest wave of ARM holders.

Home foreclosures in the first quarter of 2006 were up 72% over a year earlier, according to a study by RealtyTrak Inc. of Irvine, Calif.

If you're one of those people feeling buyer's remorse over what once looked like a great loan deal, there are, unfortunately, few easy options for digging yourself out. The only sure bet is to sell and downsize to a less expensive home or rental.

Even if your mortgage is under control, the ripple effects of rising interest rates could hit your investment portfolio. "Appraisers, mortgage bankers and title-insurance companies are all feeling the brunt of a pretty dramatic slowdown," says Stuart Hoffman, chief economist for PNC Financial Services Group.

8 comments:

Anonymous said...

I could be wrong, but I recall reading somewhere that Maria Bartoromo claimed to have spoken to Bernanke who told her that his prior comments were misinterpreted by the markets and that people should not assume rate raises were completely over. Imagine how f-ed some people will be if the Fed hikes rates past June? Wow.

Anonymous said...

All those poor home owners! TO BAD!
I've had to listen to those same people make fun of me for the last few years as I was selling off my houses. I watched as their eyes glazed over while I told them about the comming crash. I took the giggles, laughs, wispers, and looks from those people who jumped into the housing market and then, pulled all the equity out to buy their new cars and big screen TVs.

The worst part of this crash will be having to listen to all the sob stories I'll have to listen to on the local media. How could the goverment let this happen?
It's just like the gas prices. How about buying a gas saving car!!!
In the end, we all get what we pay for!

Anonymous said...

We plan on buying after the crash. It will be our first home. We're going to pay 20% down, and get into a 30 year mortgage but pay off the principal with any extra money we have. We hope to have it paid off in 20 years.

I would never get into an ARM, we even had banks telling us to buy a house when we didn't want to, saying that ARMs are the way to go. Sorry but I like the stability of fixed rates, on everythign the car, the credit cards, why would I want my rates to go up on something as big as a house?

Anonymous said...

anonymous 7:15 -

You are almost on the right track (buy when low, 20% down, 30 year fixed) but paying off a mortgage early is financially unsophisticated, a la Suze Orman.

The books 'The Millionaire Next Door' and 'The Truth About Money' explain very clearly why people who build real wealth DON'T sink extra money into paying off the principal of their home. A home is a bad investment (and will be a downright terrible one in the coming years). Any extra money should go towards investments with better returns.

Anonymous said...

The Fed is not done with rate hikes. The world determinds rates. If they stop hiking rates who will loan the US money? Everyone is blowing out paper money. Rates can only go up. The stock of the US is the dollar, the problem is that they keep IPOing it. It's ending soon without smiles.

Anonymous said...

If you buy a fairly inexpensive house, put money down, and get a good interest rate, you don't have enough mortgage interest to itemize. I've been trying to explain this to people for years, as we take our standard deduction. It makes things so much more simple, not to itemize. A friend of mine's husband insists on keeping their problematic rental condo, so he can deduct the mortgage interest. It doesn't seem worth the stress to me. In this situation, I've always enjoyed paying extra on the mortgage principle.

Anonymous said...

anonymous 7:28, yes that is good advice if you don't plan on living in the house for long, but when we buy a house, it's until we die. We don't want to move around a lot. It's not for investment, it's to live in and enjoy.

anonymous 7:15

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