Write Lightning is a blog from writer Deb Thompson.
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Thu, Sep 07 2006

Homeowners may be feeling uncomfortably wealthy

The best explanation I've found for the reasons lenders have been so willing to let marginally-qualified homebuyers squeak into ARMs was in a recent article from BusinessWeek Online. What was particularly distressing was to read that a lot of people who already had fixed rate mortages opted to go for an ARM instead of the more stable payments they already had.

I have to wonder if one of the reasons we've had such a dramatic rise in home prices, specifically in California, was because banks and other lenders were so eager to qualify potential homebuyers for ARMs. People are so desperate to hear that they qualify for a home that they may have been willing to look past the fine print or avoid reading it altogether, thinking that once they got into the process they would have greater assets or a higher income and could find a way to make those higher payments down the road.

There may be another sign of trouble. More people may not be able to make their home equity loan payments. A lot of homeowners in California used the escalating home appraisals to take out large home equity loans. Some used the money to improve the home itself, but some put the money into other risky investments or took that world cruise and bought new cars, forgetting that the house might decline in value a bit and that they'd still have equity payments to make whether those other risky investments panned out or not. Some people even took out home equity loans and used the money for down payments on even more properties.

The news this morning is that mortgage rates took a bit of a trend upward after several weeks of decline. Those homeowners who were hoping to sell their home to pay off the mortgage they can no longer afford may have missed their chance to move the property quickly. And they may not be able to move those extra properties some bought with home equity loans. A lot of people may soon be finding themselves fat on real estate holdings and staring bankruptcy in the face, all at the same time.

posted at: 10:10 | category: /Miscellaneous | link to this entry

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