Wacky mortgages and scary forecasts

… will lead to heartbreak.

How is this surprising to anyone? Ten Percent (10%!) of the subprime ARM loans written in Virginia were 30 days or more past due in 2nd quarter 2006.

Things are about to get immensely more complicated, now that the Senate is holding hearings assessing non-traditional mortgage products. Why are people/Americans so reactionary and so adverse to planning conservatively?

I was told the other day that there are only two local lenders who have not written any Option-ARM mortgages. I am pleased to consistently work with one of them.

-The biggest payment is on a 15-year payoff schedule.
-The next-biggest payment is on a 30-year payoff schedule.
-Then there is an interest-only payment based on a 30-year payoff schedule.
The smallest payment doesn’t necessarily cover all the interest accrued during the month. In this “negative amortization” option, the borrower owes more at the end of the month than at the beginning, even after making a payment. (Via Bankrate)

The next 12 to 18 months are going to be very interesting, and very full of opportunity for some and sadness/desperation for many.

Quoth Jonathan Miller:

“I have come to belive all news is presented in the most negative light possible, especially news about the economy. I have also come to believe that most people who post comments to blogs or news stories want the sky to be falling (I don’t know why – but it appears to be the case).”

And thanks again to Mr. Miller, we have the story below the fold with some truly frightening data. Typically, I might bold one or two of the more poignant points. For this data, I would have to bold it all.

And finally, if you want to see the laughing hyenas taking pleasure in all of this, spend some time at the housing bubble thread. Taking such glee in others’ pain is sad.

I am working on the local numbers for the Charlottesville/Albemarle area …

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From Comstock Partners’ commentary:

  •  32.6% of new mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000
     43% of first-time home buyers in 2005 put no money down.
    15.2% of 2005 home buyers owe at least 10% more than their home is worth.
    10% of all home owners have no equity in their homes
    $2.7 trillion in loans will adjust to higher rates in 2006 and 2007.
    70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.
    Homeowners face higher payments as mortgages are reset.  Generally, monthly payments rise between $200 and $500 depending on the size of the mortgage.
    According to Reality Trac, August foreclosures were up 23% over July and 53% over a year ago.
    The number of homes for sale is at record highs, and inventories are 59% higher than a year earlier.
    New home sales are down 22% and existing home sales down 11%.
    The NASB housing market index has recorded an all-time decline.
    The housing affordability index is at a 15-year low.
    The house price-to-income (rents) ratio is off the charts. According to HSBC, in 18 states accounting for over 40% of national home values, the price-to-income ratio is 3.6 standard deviations above the mean.
    The OFHEO index of house prices deflated by the consumption price deflator has soared to a record high of 350 from 250 in 2001.  From 1976 to 1996 it never was above 220.
    According to the NAR the year-to year prices of existing homes are now flat.  A short time ago they were rising at a yearly rate of 16%.
    Nationally, home prices have not declined on a year-to-year basis since 1933.  Recently, however, prices have been dropping in the North East, West and Mid-West.
    Sales incentives are now estimated at 3% to 7% of selling prices.
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