TheBreeze, you are right, and I’ve made those same comments too: people who purchased or refinanced into an exotic loan will be in trouble. Some old time homeowners refinanced out their equity. It isn’t just the buyers who did it. Middle aged and near-retirement folks are in for a nasty retirement.
Davelj, the ability to refinance is compromised by several factors: declining home equity, rising interest rates, lower credit scores.
1) Lower credit scores
If the homeowner missed a payment and then seeks to refinance, I think they have trouble getting a loan; a 30-day late seems to be a problem for lenders. More HELOCs and higher debts accumulated can also lower the credit score.
2) Declining home equity
Declining homes value are a problem too; if you’re underwater on your mortgage, you can’t refinance. If you got a 0% down loan, then how can you refinance? Will the lender loan you 120% of your home value in a refi?
3) Rising interest rates
If your income didn’t keep up with rising interest rates, the you won’t quality for a loan. The guy who barely got a loan at 3% or 4%, cannot get that same loan at today’s 6% rate. The payment is too high for his income.
So how do you propose the 2002 – 2005 batch of borrowers can refinance? Anyone from 2004 onward lost his equity, most likely. The interest rates are now higher, so how can they afford it? I’m very interested in any knowledge you might bring to this subject.
