'Exotic' mortgages seen losing their allure
man muß die fakten wirklich zweimal lesen um zu fassen das es an der tagesordnung ist
(in bubblehochburgen sogar der reglefall) das kredite mit ner negativen tilgung verkauft werden.
Many homeowners with nontraditional loans are in for a payment shock
"Joe" is a homeowner who did not want to give his full name for this story because he’s ashamed to admit that he soon won’t be able to afford his monthly mortgage payments
In order to get the $800,000 house he bought early last year in California’s Silicon Valley, Joe got an “option ARM,” an adjustable-rate loan that lets him choose from a variety of payments every month. The smallest payment included no principal and less than 100 percent of the interest due. The unpaid interest was tacked onto the principal, creating “negative amortization.”
Joe is not an atypical homebuyer in the Bay Area or other now-bursting bubble markets across the country. Nearly half of the homebuyers and thirty percent of people refinancing mortgages in California chose interest-only loans last year, according to research firm LoanPerformance. The nationwide numbers are not so high — 32 percent for homebuyers and 20 percent for refinancings — but they do reflect the country’s increasing reliance on these so-called “exotic” mortgages.
Nationwide, approximately $400 billion of [home-purchase adjustable-rate mortgages] are scheduled to reset at some point in 2006," said Frank Nothaft, chief economist with Freddie Mac in McLean, Va. "A significant number of homeowners will face some adjustments." In fact, the ARMs with scheduled payment increases this year work out to about 5 percent of all single-family debt outstanding in the country now, he said.
Many of these mortgages carry negative amortization features that permit borrowers to pile on additional debt beyond their original balance, and make minimal payments for the first several years. Once the initial period is over, however, payments could shoot up by 100 percent or more as the loan resets.
To head off potential problems, Countrywide Loans, the largest mortgage originator in the U.S., has started sending out letters to thousands of its borrowers who have been making only the minimum payments on the company's pay-option ARMs
The letters contain hypothetical examples of what lay ahead. One is a California homeowner making only minimum payments on a $402,000 loan. The current full interest rate on the loan is 7.6 percent, but the borrower has been paying just $1,348.47, far less than what's needed to fully amortize the mortgage over its 30-year term. If the loan reset at today's rates, the full payment required would be $2,887.50 — more than double what the homeowner is currently paying.
O’Dette could afford a 30-year fixed mortgage on a home in the upscale Lake Tahoe area she lives in but instead chose a negative amortization loan with fixed monthly payments but an adjustable rate, currently at 7 percent. “So far, I’ve added $12,000 to my $900,000 loan, but the value on my home has gone up $300,000 since I took on the loan. If someone offered me $1.5 million on my house, that $12,000 extra is not much of an issue.” (bubblementalität)