Wishful Thinking
Apr 7th, 2006 at 7:48 am by Susie
All these people, living off their imaginary equity! This is one of those times when it pays to be poor, because sooner or later, the bubble will pop:
As the real estate market slows, some mortgage lenders are trying to prop up profits by relaxing lending standards for certain types of loans, endangering borrowers and financial institutions, a top banking regulator said yesterday. [...]
John M. Reich, director of the Office of Thrift Supervision, called the increase in such lending troubling. He noted that regulators are crafting a specific warning to the industry, known as a guidance, that will restrict the use of these loans. It could be issued within the next few months.
About two-thirds of all people who bought homes in the Washington area in 2005 used interest-only or option mortgages, many of which have adjustable interest rates, up from 2.2 percent in 2000, according to statistics compiled by LoanPerformance, a real estate information firm. These loans generally have lower monthly payments than traditional fixed-rate loans, at least at the start, but carry the risk that payments could jump steeply.
Local mortgage brokers say borrowers are taking out these loans because it is the only way they can afford to buy a home today. These loans allow borrowers to pay just the interest on the debt, not to pay down the principal, which reduces the monthly expense at the beginning of the loan term.
“These types of products have been enablers when it comes to allowing home prices to rise,” said Christopher Cruise, a Silver Spring-based mortgage trainer who runs classes for lenders and regulators around the country. “Without these products, homes couldn’t be purchased. If they are taken off the market, it could precipitate a disaster of epic proportions.”
“If people suddenly can’t get an interest-only loan because the feds are clamping down on how many are out there, it’ll drive the market down,” Shaner said. “It’ll have repercussions for market values,” because fewer people will be able to buy or people will buy less-expensive homes than they might otherwise.”
Not to mention, they won’t be able to afford to heat their McMansions. But hey, the photo looks good on a Christmas card!
I by no means have a McMansion I have a nice sized 4 bdrm house. I wanted to sell it this year b/c of the bubble more fizzling out then bursting. I live in a rental for 6 months then take my equity and buy a nicer house for the same amount that I sold my home for. My wife of course doesn’t buy into this theory at all.
so now my potential at pocketing $140K in equity is gone, I am looking at half of that for the next 3 years and I have to sit in a house that I didn’t want to sit in for as long as I will have to….
pooor me I know.
I don’t see the market bursting. It will slow and houses will still sell but the shift will be towards the buyer and not the seller is all.
Is it my imagination or does the real estate industry have a problem with the free market?
It seems this is a real problem for people whose eyes are bigger than their wallets.
When I was house-shopping, I made a poitn of buying
Standing inventories nationwide for new, unoccupied single family dwellings are up 32.5% from this time last year, nationwide starts of new, single family dwellings are down 10.5% from this time last year, 25% of all mortgage holders nationwide hold interest only or adjustable rate mortgages.
And yawl wonder why I live in my truck.