A Call to ARMs

[kelly]

I report on housing issues for voiceofsandiego.org and need some help finding examples for a story about exotic loans.

There are more people wrapped up in the option-ARM game than just the first-time homebuyers who bought near the end of the housing boom (2004 or later).

I’ve seen a few posts here and on other blogs about this. Can you help me?

There’s a category of ARM-borrowers who’d bought their homes before 2002 using traditional mortgages, paid them mostly off, and then decided to use a cash-out refinancing mortgage to tap into some of the equity they’d built (sometimes more than 200 or 300 percent of their original purchase price).

It was unprecedented, to put a bunch of money into your house and then — voila! — be able to use that money again for traveling, college funds, home renovations, new cars, business investments — you name it.

I don’t want to twist your arm, but if that’s you, I’d love to hear from you. Or, if you thought about refinancing with an ARM, and decided to play it conservative, I’d be interested in your perspective, too. Or, if you just have an idea of how to get a handle on this trend, go ahead and pipe up, too.

Just reply to this post or send me an e-mail at kelly (dot) bennett (at) voiceofsandiego.org.

Thanks for your help, Piggingtonians!

[powayseller]

Kelly, I don’t know anyone to refer, since people in financial trouble hide their secret very well. But get the Voice to pay the small fee for a realtytrac.com subscription. You can get a good handle on the problem. Every NOD and foreclosure has the loan history. this is how I found 4 foreclosures in Poway, where the borrower bought in the 1980’s, and then refinanced in early 2000 (don’t remember if it was an ARM or I/O), or took out several HELOCs, and then refinanced it all to pay off the HELOC. Now, they are in foreclosure. The borrowers’ names are there, and perhaps they are willing to talk about it.

Although the lower-income areas of Poway is where I see the most defaults due to recent sales, the problem you describe, of a long-time homeowner taking out all their equity, happens in the nicer areas too. Amazingly, most of these homes are not for sale, so I assume they are hoping to come up with the money to catch up on their mortgage.

Even if realtytrac.com doesn’t result in a story, you can see the trends.

Check out my post about option ARMs; the OCC considers this the most risky of all loans. Even if the interest rate stays the SAME, at the end of its 5 year into period, an option ARM payment goes up by 50%! If the interest rate on a $360K home rises from 6% to 8%, in year 6 the payment will double!!! How many trillions of dollars will this savings and loan bailout cost? Hopefully, most of the MBS is held by investors, hedge funds, pension funds, and not banks.

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