Clint Eastwood starred in the classic movie, "The Good, The Bad, and the Ugly" Well, in real estate I deal with the good, bad and the ugly every day. The Good is meeting new people, helping them buy and sell a home and giving them good news they just bought or sold their home. The Bad is relaying the various bad information to my clients like we just received an extremely low offer on your house or your offer wasn't accepted. In real estate, there is no identical transaction - each is unique. The Ugly (currently) is the Subprime mortgage market and its current affects on the market.
The subprime mortgage market is down-right UGLY! Homeowners with 2 year adjustable rate mortgage are really getting hurt. Why? Two years ago, most anyone could get a mortgage. Mortgage lenders were giving 100% mortgages to people with 580 credit scores, which is not very good credit. So lenders sold people on the fact that they can buy a home today with a mortgage interest rate of 7.5% that is fixed rate for 2 years with no private mortgage insurance. Then in 2 years when the mortgage is about to adjust, the lenders would refinance the mortgage to a fixed rate. Well the lenders didn't educate people on how to improve their credit and in the mean time they changed their credit policies. Today, I don't know of a lender that will do 100% financing for people with less than a 620 credit score. So everyone with 2 year adjustable rate mortgages are coming to their first interest rate adjustment, and their new rate is based on an index (Libor or T-bill) plus a margin which could range between 12-15% interest rates. Ouch! I'll write a post about the components of ARMs later. Needless to say, if borrowers are given the choice between paying 12-15% interest or having the mortgage companies foreclose and take the property from them, most are choosing the later and that's why foreclosure rates are up so much. People bought homes two years ago with the hopes that property values would increase and access to easy mortgage money would continue to be there to refinance in two years. It doesn't get any uglier then that.
Finally, if you are in a 2 year ARM there are a few options. Try calling your lender to negotiate a fixed rate, refinance your mortgage, or if you plan on trying to sell your home, request paper work to negotiate a possible short sale. If you are going to try and refinance, FHA does offer a 95% loan to value refinance option, might be worth looking into. Please contact me directly if you have any questions.
Steve
DEEB Realty
http://www.omaharealtypro.com/
http://www.stevelauver.com/
http://myspace.com/OmahaRealtyPro
Full time tech savvy REALTOR serving both Sarpy and Douglas counties. Offering a comprehensive internet marketing plan. Marketing homes, not just listing them. Call Steve at 402-689-7550 to learn more
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I don't know that it was so much lenders not educating their borrowers on how to improve their credit as much as the people not changing their behaviors that led to the low credit score in the first place. Another post mentioned how some people think that the NFL sunday package is a necessity.
Bob Mitchell
ValueList Real Estate Services, Inc.
True, people didn't change their behaviors. But, I think borrowers thought, "If I can buy a home with a 580 FICO, then I should be able to refinance with a 580 FICO". The subprime market changed their credit standards, that left the sub prime borrowers out to dry without any warning.
WOW! I cannot believe this is affecting my home state also! My brother is a custom home builder and my dad flips homes there and it is amazing to hear this. The last time I talked to my dad he did say he was going to chill a bit because the market seemed to be softening. The sub prime market collapse has brought the LV market to a screeching halt for the last several months.