Posted on 10/29/2007 10:00:06 AM PDT by zek157
This may be Johari Reeves' last chance to catch up on her mortgage payments. The credit cards, she'll worry about later.
"We fell behind (with the mortgage) and twice we agreed to new repayment schedules that didn't work out," said the 31-year-old, a compliance officer at a small bank on Chicago's blue-collar South Side. "It's been a lot of stress. But this time, if all goes well, we should be able catch up."
In August 2006, Reeves and her husband bought a $214,000 home with almost no money down, leaving them with a monthly payment of $1,636 -- higher than they planned on, especially with her husband's furniture sales job largely commission-based and business not good due to the U.S. housing slowdown.
An attempt this spring at refinancing with another lender fell through, leaving them behind on payments and struggling.
But as part of her efforts to avoid defaulting on the mortgage, Reeves said she has "maxed out" all her credit cards, spending to the limit on basic needs. "Now all I'm doing is making the minimum monthly payments."
According to nonprofit groups providing debt counseling to home owners, more Americans like Reeves risk being swept up by the next wave of home owners to default on their mortgages.
The reason? A second debt mountain on top of the first.
Rising mortgage payments and tighter lending standards for refinancing amid the subprime credit crisis have dried up once-easy access to home equity loans for many middle-income borrowers -- so desperate borrowers are using credit cards to cover basics while trying to keep up with home payments.
"When credit conditions dry up, marginal borrowers turn to plastic," said Merrill Lynch North American Economist David Rosenberg. "We're seeing signs of that already."
In an October 5 research note, Rosenberg called rising credit- card delinquency rates as the "next skeleton in the closet."
It is one scary skeleton -- and a specter of bankruptcy.
The problem with using credit cards -- with their high interest rates -- to stave off default brought on by "reset" adjustable mortgage interest is that it merely postpones an inevitable crisis, said Gregary Brown, social policy director at Metropolitan Family Services in Chicago.
"Our biggest concern right now is that there are lot of people who will face a choice between bankruptcy or foreclosure," he said. "Either way, it's going to suck."
HOLDING OFF THE TIDE?
Nancy Barba -- a financial counselor at a local community group, the Resurrection Project -- helped Johari Reeves negotiate her latest attempt at a repayment schedule for her mortgage.
"The credit cards will be a problem later," Barba said. "But right now, the main concern is the house."
Barba and other counselors said people from a broad range of income levels were facing similar problems with their credit cards, especially those with adjustable rate mortgages.
"We're not just talking to people with subprime loans but also people who bought homes almost out of their range struggling with a higher mortgage rate," said Cate Williams at Money Management International, a nonprofit group.
"They're now using plastic to pay for basics like gas and food and are running into trouble," she said.
U.S. Federal Reserve data for August showed revolving consumer credit, mainly credit and charge cards, rose $6.14 billion, or 8.1 percent, to $915.47 billion -- the highest monthly increase seen since the second quarter of 2006.
More worrying, said Merrill Lynch's Rosenberg, were Fed data for credit-card delinquency, which hit a three-year high in the second quarter of this year.
The next worry? The U.S. holiday retail spending season is rapidly approaching and, according to Rosenberg and others, this could push many home owners over the edge.
"People are stretched thin even before the holidays," said Geoff Smith, project director at Woodstock Institute, a Chicago community development group. "If they spend a lot, about three months after Christmas when the bills and mortgages are past due, we could see a rise in delinquency and foreclosures."
Although the 2005 U.S. Bankruptcy Abuse Prevention and Consumer Protection Act made it more difficult to file for bankruptcy, John Talmage of nonprofit group Social Compact predicts: "We should see a spike in bankruptcy applications."
At least it takes a year to loose a house in IL.
Mistake #1.
What, only one job??? Each of them should probably be working two.
Mistake #2.
The mortgage payment should have been no more than 60% of the wife's take home if she worked assuming she made less annually, or 35% of the husband's monthly average take-home to include taxes and insurance.
Mr. Reeves needs to go out and get a better job. Selling furniture is iffy even in a good market; he ought to have been able to see the writing on the wall when the real estate market started to go south. No reason for him to stick with that job now.
If I were in danger of losing my house, I’d sell my stuff on Ebay, take a second job on weekends and/or evenings, do whatever it takes.
It must have started about the 2nd payment.
“We fell behind (with the mortgage) and twice we agreed to new repayment schedules that didn’t work out,”
“What do you mean we have to pay the mortgage?”
In August 2006, Reeves and her husband bought a $214,000 home with almost no money down, leaving them with a monthly payment of $1,636 — higher than they planned on, especially with her husband’s furniture sales job largely commission-based and business not good due to the U.S. housing slowdown.
Hey Dems! here’s a chance to pickup another dem voter just pay off their debt.Tax payers wont mind.>sarcsm
"Only two jobs?!? Why you lazy lima bean!" /Hey Mon Reference
Paying them off can be one of the hardest things to do.
Where to start. First off, this couple no doubt started getting in trouble months or weeks after they bought the house as the loan was originated in August 2006. What does that tell you. Second, the monthly payment amount of $1,636 on $214,000 borrowed cannot include property taxes, which in Illinois adds probably another $350 - $400 on top of the $1,636 amount. The article seems to imply that this couple will max out their credit cards, save their house, and declare bankruptcy. Finally, to all the fools out there who there who will load up on the $20 cheap plastic Chinese garbage as Christmas gifts and lose their house...don't come crying to the government for a bail out. And NO SOB stories in the MSM!!
You mean you wouldn’t go to Europe for the 2nd time in 12 months?
A relative that is losing her house in August did that. She also went to Florida, but it was on a “cheap ticket”.
In August 2006, Reeves and her husband bought a $214,000 home with almost no money down, leaving them with a monthly payment of $1,636 -- higher than they planned on, especially with her husband's furniture sales job largely commission-based and business not good due to the U.S. housing slowdown.
They bought at the top, went higher than their planned budget, and were dependent on commissioned sales to make the payments. What did they think was going to happen?
A classic case of people who cannot manage their money. Imagine going into more debt because you are in debt.
My wife is trying to talk me into getting ONE credit card,(Discover)I’m still balking at the idea. I like not being in debt up to my a$$!
Economy/Credit/Housing Ping List
If you want on or off this list let me know.
Elaborate please..?
Actually, he might be in a position where he knows that he makes 3 times as much in a good market as bad and figures it’s still worthwhile to hold out rather than take some salaried job paying one-third what he used to make.
That said...furniture sales isn’t exactly the same as selling industrial supplies or even real estate when it comes down to money potential.
Clue - it's an election year.
BUMP
Yeah, but again reduced by mortgage interest deduction which is probably 400-550 per month. So we're back to about $1,500 monthly cash outlay, let's give 'em $125/week for food and incidentals.
So this couple needs maybe $2K month cash income, $24K per year. Let's say before tax income is $35K for TWO people (and THAT'S TOO GENEROUS).
Looks like these two got a $214K "no doc" mortgage with an income not much more than official U.S. poverty levels.
They should go to www.salary.com and look for (apparently) low-skill and/or sales jobs to meet their financial needs. Even your basic retail sales job pays $24K in Chicago. If they both work retail, they can pay their bills AND put money on the bank.
Having a credit card doesn't get you in debt - misusing it does. There is nothing wrong with having a card if you have the self-discipline to only use it for purchases that you can and will pay off each month.
Another hint: every mortgage holder in trouble is going to vote.
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