The House Trap

[patb]

The NY Times is finally catching on to the house trap.

Edward and Maria Moller are worried about losing their house — not now, but in 2013.

That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.

Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years.

It was a “buy now, pay later” strategy on a grand scale, meant for a market where home prices went only up, and now the bill is starting to come due.

With many of these homes under water — worth less than the loans against them — many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal. Monthly payments can jump by as much as 75 percent.

The Mollers owe so much more than their house is worth, and have so few options, that they are already anticipating doom.

“I’m praying for another boom,” said Mr. Moller, 34. “Otherwise, we’ll have to walk.”
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Still, interest-only loans represent an especially large problem. An analysis for The New York Times by the real estate information company First American CoreLogic shows there are 2.8 million active interest-only home loans worth a combined total of $908 billion.

The interest-only periods, which put off the principal payments for five, seven or 10 years, are now beginning to expire. In the next 12 months, $71 billion of interest-only loans will reset. The year after, another $100 billion will reset. After mid-2011, another $400 billion will reset.

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The Mollers bought in 2005, paying $460,000 for their three-bedroom, thousand-square-foot house. A quick refinance a few months later supplied cash to pay debts. Now the house is worth perhaps $310,000. After their interest-only period is up, they expect their monthly payments to increase 20 percent if not more.

“Everyone out here always preached to me, ‘Buy real estate. It’s the best investment you’ll ever have,’ ” said Mr. Moller, who grew up in Iowa. “Then all this stuff started crumbling and I was like, ‘You’re kidding me.’ ”

While default may be a long way off, the prospect is already dampening the couple’s spending habits. They are postponing the new windows the house needs. They recently bought a 2005 Nissan Murano instead of a new car, and they have put off buying a flat-screen TV.

Mark Goldman, a San Diego mortgage broker, said many interest-only buyers thought they would be in control when the loans reset. “They expected to move or refinance,” he said. “But you can’t do either when you’re under water.”

Among the people Mr. Goldman put into interest-only loans was himself. He refinanced five years ago to shrink his payments so he and his wife, Julie, could put their two sons through college. When the interest-only period expired a few months ago, their payments went up by 40 percent.

The Goldmans have been in their house for 20 years, which means they still have some equity. Still, they are unhappy to find themselves in “a world different than we planned for,” said Mr. Goldman, a lecturer in real estate finance at San Diego State. “If you purchased your home with an interest-only loan between 2003 and 2006, you’re cooked.”

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Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.

“I understand I took a risk,” Mr. Janis said. “But I did not anticipate that the real estate market would go down 30 percent.” He talked with Wells Fargo about his options, and the lender said he had none.

Homeowners with interest-only loans have a much greater likelihood of default, the First American CoreLogic figures indicate. Nationally about 18 percent of prime interest-only loans are at least 60 days delinquent. In California, the level is even higher: 21 percent, a rate exceeded only in the other bubble states of Florida and Nevada.

To all us Piggingtonians, it’s all old news, but, for the NY Times to be covering
this is a good start.

One of the people cited is a Real estate finance lecturer.

wow, hoisted by his own petard.

[kev374]

and should we feel sorry for these dimwits? People with such a level of financial ignorance should be banned from receiving any loan PERIOD! Instead they were given 100% financing…idiotic!

[kev374]

and should we feel sorry for these dimwits? People with such a level of financial ignorance should be banned from receiving any loan PERIOD! Instead they were given 100% financing…idiotic!

[kev374]

and should we feel sorry for these dimwits? People with such a level of financial ignorance should be banned from receiving any loan PERIOD! Instead they were given 100% financing…idiotic!

[kev374]

and should we feel sorry for these dimwits? People with such a level of financial ignorance should be banned from receiving any loan PERIOD! Instead they were given 100% financing…idiotic!

[kev374]

and should we feel sorry for these dimwits? People with such a level of financial ignorance should be banned from receiving any loan PERIOD! Instead they were given 100% financing…idiotic!

[pepsi]

[quote=patb]
Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.
[/quote]

$6700 for a lawyer ? that is 30 hours of work.
Come on, just pay off your debt.

[pepsi]

[quote=patb]
Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.
[/quote]

$6700 for a lawyer ? that is 30 hours of work.
Come on, just pay off your debt.

[pepsi]

[quote=patb]
Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.
[/quote]

$6700 for a lawyer ? that is 30 hours of work.
Come on, just pay off your debt.

[pepsi]

[quote=patb]
Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.
[/quote]

$6700 for a lawyer ? that is 30 hours of work.
Come on, just pay off your debt.

[pepsi]

[quote=patb]
Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.
[/quote]

$6700 for a lawyer ? that is 30 hours of work.
Come on, just pay off your debt.

[AK]

Is it just me, or does NYT spend way too much time chronicling the foibles of us Californians? Aren’t there plenty of New Yorkers in similar straits? Like, that Geithner character?

[AK]

Is it just me, or does NYT spend way too much time chronicling the foibles of us Californians? Aren’t there plenty of New Yorkers in similar straits? Like, that Geithner character?

[AK]

Is it just me, or does NYT spend way too much time chronicling the foibles of us Californians? Aren’t there plenty of New Yorkers in similar straits? Like, that Geithner character?

[AK]

Is it just me, or does NYT spend way too much time chronicling the foibles of us Californians? Aren’t there plenty of New Yorkers in similar straits? Like, that Geithner character?

[Author]

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