When Will the Housing Recession End?

The Affordable Mortgage Depression ^ | 5/11/2009 | Whitney Ross

[GlockThe Vote]

The housing scam was a conspiracy of many actors:

1. Federal Govt.
2. Banks
3. Local Govt.
4. Mortgage Brokers
5. Appraisers
6. Realtors
7. Title Companies
8. Borrowers
9. Contractors
10. State Govt.

[GlockThe Vote]

The housing scam was a conspiracy of many actors:

1. Federal Govt.
2. Banks
3. Local Govt.
4. Mortgage Brokers
5. Appraisers
6. Realtors
7. Title Companies
8. Borrowers
9. Contractors
10. State Govt.

[grand wazoo]

My ARM was based on the one-year T-Bill. Those ARMs have been dropping......for about 4 years now.

It appears that many of the index rates have been dropping for the past couple of years. Does that mean that your monthly mortgage payment will be reduced? Or will previous cap limits cause carryover to be added to your rate?

[MinorityRepublican]

Coming sooner than later. Look at what happened to Greece.

[Toddsterpatriot]

It appears that many of the index rates have been dropping for the past couple of years. Does that mean that your monthly mortgage payment will be reduced?

Yes, if your index is dropping, your payment will drop.

[Chunga85]

“I have no compassion for anyone”

No kidding!

[grand wazoo]

Yes, if your index is dropping, your payment will drop.

Not necessarily. It depends on the timing of the rate readjustment. Also, if there is carryover from a previous readjustment that exceeded the cap ceiling added to your rate that exceeds the amount your index dropped, then you will have an increase in your mortgage payment. The bank may also increase your margin based on poor credit score (not yours per se, I'm just generalizing).

Of course the main subject of the article is the option adjustable rate mortgages and the amount of money involved is huge. I think that almost everyone can agree that most of these mortgages will end up in foreclosure causing more problems than expected. Even if the monthly payment decreases, many people will decide to stop making payments on an asset that may lose hundreds of thousands of dollars. They will walk away leaving the banks holding the depreciating asset. The banks will force the insurance companies to pay the mortgage (that's what PMI is for) until they sell the house. Many banks and several insurance companies will go out of business and the markets will suffer. Between the current shadow inventory and the coming flood of new foreclosures, it will take more than a few years for the housing market to stabilize. I think that 2014 is a little too optimistic.

[Toddsterpatriot]

Also, if there is carryover from a previous readjustment that exceeded the cap ceiling added to your rate that exceeds the amount your index dropped, then you will have an increase in your mortgage payment.

AFAIK, that's not how the caps work. It's certainly not the way mine worked. And if your index has been dropping for several years, your rate is gonna drop.

Of course the main subject of the article is the option adjustable rate mortgages

"Adjustable Interest Rate Mortgages will continue to reset through 2012. These resets will trigger a steady flow of foreclosures" LOL!

I guess they could have mentioned that regular adjustables will be (and have been) adjusting down.

I think that almost everyone can agree that most of these mortgages will end up in foreclosure causing more problems than expected.

I wonder how many of those already defaulted and are now being double counted?

[Chunga85]

I’m in agreement with your assessment. What irks me to no end is the concept that this is just free enterprise at work.

This is blatant manipulation of free enterprise.

Anyone who cares to delve into it more deeply can easily discover that crimes have been committed in the murky pool of synthetics CDOs, GSEs, CMOs, Credit Default Swaps, etc.

This is supposed to be a country of laws.

[grand wazoo]

From the link to the federal reserve in post 32:

Periodic adjustment caps Let's suppose you have an ARM with a periodic adjustment interest-rate cap of 2%. However, at the first adjustment, the index rate has risen 3%. The following example shows what happens. Examples All examples on this website are based on a $200,000 loan amount and a 30-year term. Payment amounts in the examples do not include taxes, insurance, condominium or home-owner association fees, or similar items. These amounts can be a significant part of your monthly payment.

This graph shows 3 different mortgage payments for a $200,000 loan. The first year’s monthly payment at 6 percent is $1,199.10. The second year’s monthly payment at 9 percent, without a periodic adjustment cap, is $1,600.42. The second year’s monthly payment at 8 percent, with a periodic adjustment cap, is $1,461.72. The difference in the second year between the payment with the cap and the payment without the cap is $138.70 per month. In this example, because of the cap on your loan, your monthly payment in year 2 is $138.70 per month lower than it would be without the cap, saving you $1,664.40 over the year. Some ARMs allow a larger rate change at the first adjustment and then apply a periodic adjustment cap to all future adjustments. A drop in interest rates does not always lead to a drop in your monthly payments. With some ARMs that have interest-rate caps, the cap may hold your rate and payment below what it would have been if the change in the index rate had been fully applied. The increase in the interest that was not imposed because of the rate cap might carry over to future rate adjustments. This is called carryover. So at the next adjustment date, your payment might increase even though the index rate has stayed the same or declined. The following example shows how carryovers work. Suppose the index on your ARM increased 3% during the first year. Because this ARM limits rate increases to 2% at any one time, the rate is adjusted by only 2%, to 8% for the second year. However, the remaining 1% increase in the index carries over to the next time the lender can adjust rates. So when the lender adjusts the interest rate for the third year, even if there has been no change in the index during the second year, the rate still increases by 1%, to 9%.

This graph shows 3 different mortgage payments for a $200,000 loan. The first year’s monthly payment at 6 percent is $1,199.10. If the index rises 3 percent to 9 percent, but there is a 2 percent rate cap that limits the interest to 8 percent, the second year’s payments would be $1,461.72. If the index stays the same at 9 percent for the third year, the monthly payments in year 3 would be $1,597.84. In general, the rate on your loan can go up at any scheduled adjustment date when the lender's standard ARM rate (the index plus the margin) is higher than the rate you are paying before that adjustment.

[dalereed]

“Anyone hear of any banks doing anything creative?”

BofA is dumping the loans they assumed from Countrywide onto FHA.

I just bought one from FHA.

[dalereed]

Just from bidding on forclosed homes in my area is the only information I have.

I’ve got a realtor that emails me hundreds of forclosed homes for sale by banks, FHA, HUD, and also bank short sales.

I lowball them with cash offers that will pay off as a rental and give me at least 8% net.

I’m tired of making 1.3% on my money!

[Toddsterpatriot]

Got it, I wasn't clear what you were talking about at first.

And if your index has been dropping for 4 years, it doesn't matter if your increase 5 years ago was capped or not.

[Toddsterpatriot]

Anyone who cares to delve into it more deeply can easily discover that crimes have been committed in the murky pool of synthetics CDOs, GSEs, CMOs, Credit Default Swaps, etc.

Like what?

[dalereed]

Find yourself a good Realtor that will hustle and dig up prospects and submit good proposals for you.

They are tough to find, in my opinion 98% are not knowledgeable, lazy, or both and don't do a good job working for you. I had a good one 20 years ago but he moved to Sacramento and I've finally found another good one.

[JerseyHighlander]

“Why won’t resets at these low rates reduce mortgage payments and reduce the rate of foreclosures?”

This question gets asked all the time... the simple answer, the mortgage homes were still sold at too high of principle, no level of interest rate adjustment is going to make the mortgage affordable without the banks writing off part of the principle of the loan.

[Toddsterpatriot]

the simple answer, the mortgage homes were still sold at too high of principle

Every single adjustable rate mortgage is on an overpriced house? And even though the payments are adjusting down, there will still be a wave of foreclosures on them?

Will that be more serious than the wave of foreclosures on overpriced houses with fixed rate mortgages?