Three ARM/Pick a payment on two houses!

By
Real Estate Sales Representative with Keller Williams

This week we had the oportunity to meet Hispanic homeowners who spoke very little english who wanted their home valued.  I and a Spanish speaking Realtor met with them and told them that their home was worth $240,000.  The mortgage on their home is $262,000 with $1180 per month payments.

Since that did not compute I examined the mortgage documents and discovered they had been paying less than the interest and their payments were about to increase to $2450pm.  We further asked where they got the $14,000 to put down and they said that they put a second mortgage on their other home and rented it.  The rent barely covered the payments and when I understood the terms of the other two mortgages it transpired that the first had increased from $181,000 to $195,00 and both mortgages were soon to go to a greatly increased payment schedule.  The home is worth perhaps $200,000.

Did they understand what they were getting into?  My belief is No and Yes.  They obviously did not know the details of the mortgages and the Hispanic Realtor who represented them did not attempt to do so.  The Realtor just told them to refinance at their convenience.  On the other hand they bought two house with no cash of their own, lived in one at a greatly reduced monthly cost and will probably face no consequences.  If things had worked out that they were at the top of the Ponzi scheme they would be well off now.  Looking at it like that they were cynical but not dumb.  They have already worked out that their best bet is to buy a trailer in a park with the money they have saved up! 

But the banks!  The second mortgage is with a defunct sub prime lender but the two first are with major banks.  These loans were the result of such bad practice I am not going to feel sorry for them.  The $22,000 2nd is 100% gone.  The $195,000 on the rental will lose about $15,000 and the $262,000 1st of the house they're living in will lose about $40,000.

 Your tax money at work!

 

 

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Todd Clark
Keller Williams Realty - Beaverton, OR
Broker - Beaverton, Oregon Real Estate Expert - (503) 524-9494

As I am finding out more and more about this bailout, I am getting more and more scared by what it could do. If it goes as the government plans, it will decrease the federal deficit and make much more than the 700 billion they are lending. But, I'm guessing like most government plans, I see this one not working out and the tax payers being on the hook for the billions.

Todd Clark, Helping Families Home - www.IFoundYourNewHome.com

Oct 05, 2008 12:22 AM #1
Rainmaker
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Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Today I was listening to a financial guru talk about how several guys in their 30s figured out about 4 years ago, that there was a lot of money in doing home mortgages.  But, because there wasn't enough mortgage business in their eyes, they began doing derivatives from mortgage business - and packaging them up and selling them, adding a layer of fees to the product,  As this went on  another of the 30 year olds, began doing computer algorithms on these products, based on the "future" of housing, etc., and the idea expanded with derivative packages themselves being once again packaged or repackaged, and sold once again to investment institutions, banks, etc.  It set up a perfect storm for a collapse if the housing market hiccuped. . .AND we now know the rest of the story:-(

If the financial gurus, and the computer whiz, with his algorithms couldn't foretell what would happen, then we shouldn't expect that folks, who don't have English as their first language, ought to be able to understand what would occur.  Afterall, most folks were operating in a vaccuum of information!  And many trusted far too much, the "experts" who were looking the other way, while their pockets were being lined.

Oct 07, 2008 07:40 PM #2
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Jerry Rolling

CRS GRI ABR Realtor Vancouver WA
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