Posted by Brian at 10:31 PM
Like nobody saw this coming.
NEW YORK -- In 2003, Anita Britten refinanced her two-story brick cottage in Lithonia, Ga. using a hybrid adjustable rate mortgage, or ARM. Her lender reassured her that she could refinance out of the riskier loan into a traditional one when her interest rate started to reset.
Three years later, Britten can't get a new mortgage and her monthly payment has jumped by a third in six months. She can't afford her payments and may face foreclosure if her financial situation doesn't change.
As more ARMs adjust upward and housing prices begin to dip, many Americans like Britten can't refinance and are finding themselves trapped in too-high monthly payments. For those who can't make their payments, foreclosure is the only way out.
I learned watching my ex's parents back in the 90's that an ARM was a sucker's bet, as if it weren't already clear. And now I get to watch it happen all over again. Our neighborhood is a perfect example of the overpriced, overheated market with condos bought by investors who were counting on flipping them before the ARM adjusted. I've already seen one foreclosure sign down the street, and I have no doubt I'll see more before the summer is over.
Here's another quote from the article I found especially telling:
Additionally, Gaines pointed out that these same real estate markets also boasted a higher percentage of ARM originations, because most buyers could only get into their homes using an unconventional loan.
In other words, brokers and agents convinced people they could afford houses they couldn't really. And why not? Agents get their money when the house sells, not when it's paid off--it doesn't matter to them whether the people they're selling to can handle the payment when the ARM readjusts and the payment ges up a third.
That's not to say that all agents are unscrupulous, or that buyers aren't responsible for knowing what they can handle--but there are some out there who are unscrupulous, and who will push buyers into houses they can't handle. And foreclosures are part of the result.
I know I'm not the first to observe this, but the house buying frenzy down here last year when we moved back reminded me of the top of the stock market about 6 years ago. Even though the more sober-minded looked at the market (either one) and said "man, this seems overvalued and rickety," there were a lot of people screaming "if you don't buy now, you'll never be able to." Fortunately for us, we were so priced out of the market that there was no possibility of buying, so we didn't have to fight the temptation to overpay for something crappy just to say we had it. Now, we're looking at a situation where if we see some inflation and wage-growth and housing prices either stagnate or fall, we might be able to look at buying.
In 2020. Maybe.