Sounds to me like one of those bubbles.

But then again some of those bubbles have been in existence for decades and show no sign of bursting.

I wouldn't like it, but . . . .

 

S2020, yes, the principal balance increases every month by the amount of deferred interest, or negative amortization. In this case, the guy is increasing his principal balance by $3500/ month. The maximum they will let it go to is 110-115% of his home value. So for him, they will let it go to $1.61m on his appraised value of $1.4m. Then he will be forced to make "normal" mortgage payments of principal and interest.

Detroit

 

When I bought my house in June of 2005 the mortgage company was really pushing an ARM, but I went with a 15 year fixed at 5.25%. I had a lot of co-workers, friends, etc. telling me I was nuts to go fixed - but I guess I wasn't crazy afterall...

 

I have sorry for those fools that have 103% financing on interest only, adjustable rate loans. There will be LOTS of real estate on the foreclosure market soon.

I wonder how all this will effect the overall economy?

 

now i'm scared....

 

Detroit is right in that you can only get so much negative amortization before the lender gets scared and says HALT! I mean you can't imagine they want a foreclosure and owe more than the property is worth, do you?

Now here's the scary part, when you reach the maximum level of neg am they allow for that loan (some go to 125% of the original loan amount) they take you off the neg am loan and raise your payment to whatever amount is necessary to fully amortize (pay off) the loan in whatever time is remaining on the loan.

SO that guy in the example needed to raise his payment by $3,500 to be at a break even point on his mortgage but now he also has to RAISE IT SOME MORE to cover all the back neg am and pay the loan off in the remaining 5-10-15-whatever # of years left on the note!

Payments can double or triple over night in other words. Now what's going to happen to him and that property? Hopefully it still has more value than the loan amount and there is a ready market for that property.

As bad as that sounds it can work out OK on the appropriate property, but it definitely isn't for everyone.

As the post office says, "if it sounds too good to be true, it probably is!" The same thing applies to mortgages and real estate. You don't get nuthin for nuthin.

The safest loan is the traditional fixed rate mortgage. But the safest thing is to buy the right property under the right terms in the first place!

Except in a few areas of the country condo's and town homes have a limited marketablilty and have very severe value cycles whereas a traditional homes have the least fluctuation.

There is a reason the fixed rate loan and the standard house is the traditional favorite, they perform the safest in all economies.

 

[QUOTE=mav,Sep 1 2006, 01:32 PM] I have sorry for those fools that have 103% financing on interest only, adjustable rate loans.

 

Which brings up another issue. I tuned into a talk radio program a few weeks ago where they had an expert in the housing industry as a guest and he was saying that the home bulders were telling the appraisers that they better appraise the house at the price he (the builder) says or he'll find an appraiser who can.

Now that sounds like price fixing or some other form of illegal activity. That kind of BS needs to be stopped.

Warren

 

You would be amazed at things builders want and get away with. That is just the tip of the iceburg.

NEVER EVER use the builder's mortgage company or you have no one on your side! That is just giving them a license to steal. They work in tandem to get the best deal for the builder. It is amazing how many builder's costs end up on the buyer's side in those transactions. It is also amazing how many homes are closed when they aren't even completed - complete no-no if you use an outside lender.

1 year Home warranty! What's that? They make it such a hassle to get your warranty work done that most people give up, which is what they want. A few years ago the Home and Apartment Builders association in our area was holding classes teaching the builders how to close with $10,000 extra in their pocket. But for some reason they are immune from price fixing laws.

Having been a Builders lender for multiple builders from big to small I know that it is only a matter of time before they ask you to cover their behind.

Using a Builder's title company is somewhat better but there are still ways they get to you.

Since the inception of HUD in the 60's as a protection to the buyers it has been illegal for the builders or anyone to control all aspects of the transaction and then literally overnight about 2 presidents ago it was not only legal but the preferred way to do business.

Costs are up and more money finds it's way into the builder's pocket.