Congratulations on finding the best resource on the current housing mess in SoCal. Be warned however thet when you ask a question some here would consider “stupid” you expose yourself to some torment. Don’t worry about it, it’s an anonymous forum, and nobody really cares. I urge you to review some of the archives in this forum, it will greatly help get you up to speed as to why some will think you asked a stupid question.
Just remember one thing, banks are not in business to get you into a home. They are in business to make money, plain and simple. In order to sell their product, a home loan, (and make no mistake, it IS a product) they need to advertise. Recently the best advertisement has been these 2/28, 5/25 etc. loans in which you pay an introductory teaser rate, which is often 1-2% interst. These are the types of loans that are getting people into trouble. A normal ARM which is simply tied to the prime rate is no problem, you simply pay a slightly higher rate when the interst rate goes up slightly, but you break even when the rate goes back down. However, with these newer teaser ARMs the introductory rate isn’t just a gift, they recoup the losses at the end of the loan period by raising the rates to a level EVEN HIGHER than what a normal ARM would adjust to. This is what is meant, by and large, by loans resetting. The banks simply will not continue to take a loss on the interest rate to “keep people in their homes”.
Unfortunately these loans had the well known (in this foum anyway) of inflating home values beyond normal affordability in the median income range, as affordability became defind by the monthly payment at the teaser rate. The banks are suddendly going to become de facto homeowners when people can’t make the payment at the new rates, and can’t refi when the home is worth less than they owe on it.
I hope that helps, don’t be afraid to post. Amid the flames someone will attempt to answer your question.
