Affluent Homeowners, Too, Have Mortgage Problems

[Purveyor]

NEW YORK: The home mortgage crisis is increasingly ensnaring not just lower- and middle-income borrowers but also households with incomes of $100,000 and more.

Just like those other buyers, these more affluent consumers took out adjustable rate mortgages, or ARMs, to buy houses they would otherwise not have been able to afford at the peak of the housing bubble in 2005 and early 2006. Or some refinanced existing mortgages to take cash out for businesses or other investments.

But now, with the low initial payments skyrocketing and the worth of their houses falling, these affluent borrowers are struggling with their ARMs, according to Allen Fishbein, director of housing and credit policy at the Consumer Federation of America.

Susan Wachter, professor of business and a real estate specialist at the University of Pennsylvania's Wharton School, agreed that people in all income categories "are facing the shock of new payments that can be twice as much as previous ones."

According to Loan Performance, a unit of First American CoreLogic, a real estate information company based in Santa Ana, California, about 870,000 borrowers took jumbo ARMs - mortgages of $417,000 or more - from 2005 to 2007.

In the fourth quarter of 2007, 8.1 percent were two or more payments late, it found, while 2.62 percent were in the foreclosure process and 1.35 percent had been foreclosed. All the numbers were up from the third quarter.

Mark Zandi, chief economist for Moody's' Economy.com, predicted that eventually 8 percent of these jumbo ARMs would be foreclosed. In the first quarter of 2008, "the delinquency and foreclosure rate will clearly be higher," he said.

---EOE---

http://www.iht.com/articles/2008/03/19/business/mortgage.php

[Taverner]

1. Every day I am thankful that I switched to a fixed rate

Before the crash and the bubble bursting...

And I am also glad we didn't buy a huge mcmansion...

[rucky]

4. we're a bit stretched - even on a fixed.

but still within FHA loan limits for a refinance. Rates are really good lately. No cash out, though, even though my home's still gained in value.

[phantom power]

2. A good observation about this:

As some of us have been trying to explain for a long time, "subprime" was a category of borrower, and ARMs and other types of "exotic" mortgages were loan types. While in some areas subprime borrowers were probably more vulnerable to predatory loan tactics, this has never been a "subprime" problem. If I had to describe simply if imperfectly what the problem was, I'd say it was a lax lending standards problem. Years ago I said these stupid loan terms were a bad idea, but I had no idea then that not only were stupid loans being given out but that they were being given out to people who had no hope of repaying them.

http://atrios.blogspot.com/2008_03_16_archive.html#6220537271343943378

[rucky]

7. Yep. Freddie and Fannie are getting the spanking they deserve

as well.

Heard something like 40% of foreclosures are from conventional. Still less in proportion to subprime, but not a number to sneeze at.

[Lance_Boyle]

3. Wait, I thought income of $100,000 was "middle class."

Is it now affluent again?

[shireen]

10. guess the writer forgot that the dollar's been plunging to new depths.

But you're right, even before the boom, I would not consider a family income of $100k as affluent, perhaps upper-end of middle class. As a single person, I am in awe of people who have to raise kids in the economic environment of the 2000s.

[spinbaby]

11. Depends on where you live

Here in Western Pennsylvania, it's affluent. In California or the New York City area, it's barely middle class.

[DadOf2LittleAngels]

16. I would think 100K is the very top of middle class

maybe the bottom of upper class, it all depends where you live.

100K in Buffalo NY is doing really well, 100K in NYC is doing far worse..

[Lorien]

23. Since BushCo stole the office "wealthy" is now those who bring in 420k

and above per year (that's where the really good tax breaks kick in). I know quite a few people making 300k and below who live very middle class lifestyles, but most of those are in L.A. Even in my neighborhood a 1800 sq.ft. 3/2 on a tiny lot with no garage still goes for nearly half a million. It's absurd. But my friends in Syracuse, N.Y have a gorgeous 4/ 2.5 on a good sized lot that cost them only 70k. Cost of living is VASTLY different in the very depressed regions of the country.

[DadOf2LittleAngels]

27. Nothing to do with 'depressed areas of the nation'

Its about demand. Compare the population within 100 miles of the Cuse with 100 miles of LA...

I live in MSP which is *hardly* depressed but 115K got me a three bedroom condo (though it was a fixer upper that I put 25K into).

[Lorien]

29. Yes it does. Ask anyone from Michigan

Syracuse has lost a huge number of manufacturing jobs, just like Detroit. Orlando (my city) continues to grow as overseas visitors enjoy the weakness of our dollar against their currency. Population alone is NOT the only factor; job availability plays into it hugely.

[DadOf2LittleAngels]

32. There are market where jobs are growing and home values are not..

Correlation does *not* equal causation...

I have lived in both depressed areas and in non depressed areas

Buffalo NY and Minneapolis MN. Home prices are not all that different but job prospects are way different.

Of course when people leave in droves value falls but even before MI started hemmoraging jobs homes in the LA area cost way more....

[Warpy]

5. That's where we're seeing prices fall here in NM

in the upper end houses that were built in the last 5 years. Many of them were sold to out of state speculators, 1/4 of all new construction to Californians, alone. Now there is a huge oversupply of houses with media rooms and all stainless kitchens and a dearth of small houses for working families. The silly houses with the poorly allocated space and the central AC instead of cheap evaporative coolers are depreciating faster than day old bakery products.

I have to feel sorry for the families who bought houses in those neighborhoods and live in them. Nearly every block has one house that is falling into disrepair, with a neglected yard and swimming pool full of leaves and trash, dragging down their own property values.

I don't see the bottom being reached for at least 5 years here. Jumbo liar loans will be resetting through next year, and the fallout from upside down mortgages will continue far longer.

[rucky]

9. What parts?

if you don't mind me asking.

I hear Cruces is still booming.

[Warpy]

12. Even Santa Fe is feeling the pinch right now.

Big houses up in the northern part of the state that were overbuilt to satisfy a speculative market are depreciating.

[displacedtexan]

6. Remember that line from Six Degrees of Separation?

"They live hand-to-mouth, only on a higher plane."

Sounds like the people described in this article.

[nashville_brook]

13. god, i love that movie.

[Xenotime]

26. Exactly

[question everything]

8. We are not affluent and we do have a fixed rate mortgage

however, a recent story said that if home prices would be reduced by additional 10%, that 20 millions - I think - more homeowners will owe more than the value of their homes.

We purchased ours in 2002 and have been paying the mortgage at an accelerated rate, but additional 10% decline would put us in the same group.

[ellie]

22. Right now I owe

$5,000 more than what my house is worth. I have a fixed-rate, conventional mortgage and I did not re-finance to buy stuff. I am glad I am not wanting to move anytime soon.

[DadOf2LittleAngels]

14. I have little pity for these people

"are facing the shock of new payments that can be twice as much as previous ones."

Read: They did not bother to do the math when they took out a loan. I turned down every ARM scheme they tried to offer me despite the fact it meant a slightly higher mortgage at the time! Now I made a million and one mistakes in buying my first house but I made sure I would be able to afford it even if my income dropped by 20%...

Yes it means I got a crappy small condo which I had to do a ton of work in fixing up but my payments are 800 a month and not going anywhere...

[Bobbieo]

15. I'm one one the lucky ones, here, I paid off my fixed rate mortgage in December

[Hobarticus]

17. Congrats!

A cause to celebrate in these times...


:toast: :bounce: :toast: :bounce: :toast:

[Lorien]

24. A lot of people bought thinking that they would move in a year or two

those are the people that the predatory lenders were after. I was approached by one and they do talk a good game. I blame lack of regulation, not homeowners who were too trusting or truly believed their initial plans would work out.

[DadOf2LittleAngels]

28. Those people were foolish and most of the blame lies on them..

A year or two? thats like day trading *on margin* and you damn well better know what you're doing before you play that game. You cant protect greedy,lazy,foolish people from their own folly. If someone opens up an ebay account and uses money from a credit card advance to day trade whos fault is it?

Now the lenders who helped tweak paperwork to get loans through that had no earthly reason to go through (pumping income / credit or minimizing debt obligations) need to be in prison but just because I offer you a one sided loan does not make it either illegal or unethical.

[Lorien]

30. We shouldn't bail out greedy corrupy pradatory lenders

for fucking over Americans citizens with the TAX DOLLARS paid by those citizens. The bankers are getting away from this crime scott free, and you seem to be cheering them on.

No, I WILL NOT lay the blame for this mess entirely at the feet of the home buyers. What the lenders did was criminal. I met a few of them, and they were the slickest snake oil salesmen imaginable.

[DadOf2LittleAngels]

31. Where did I say they should?

"We shouldn't bail out greedy corrupy pradatory lenders"

By all means let the companies go under its a damn shame we can bail out banks but not people. Neither should be getting bailed out! Don't confuse my disgust with people taking their folly and crying 'poor me' excusing banks doing the same..

Some people decided to live within their means over the past 5 years they are the true victims of this sad dance. And they will see fools all around them get paid for their folly (bailouts of mortgage companies and perhaps people)

"No, I WILL NOT lay the blame for this mess entirely at the feet of the home buyers."

Nor did I..

At the Micro level a person losing their home is *usually* their own fault they were penny wise and pound foolish, betting on sunshine in two years... They lost the bet to bad so sad... They did not bother to take out a calculator and say *if* my payments go up 6% and I cant sell before then what will they be and how will I pay?

But if you mean the macro level when you say 'this mess' certainly the banks hold fault and should be allowed to reap the whirlwind which they have sowed. There are two classes on this side

1) Creepy one sided but legal loans: lose their jobs/companies/....
2) People who fudged paperwork to push through loans... Prison!

"What the lenders did was criminal."

Selling someone a bag of coal and telling them that under the right circumstances it could be made into a diamond is *not* criminal. Slimy? yes but not criminal.

[MrCoffee]

18. "to buy houses they would otherwise not have been able to afford"

I'm sure it's the dirty predatory lenders fault, somehow.

[Mountainman]

20. Some people thought they could flip the houses and make a profit.

But time ran out on that game.

[MrCoffee]

21. I have no qualms at all about laughing at those people.

[Mountainman]

19. Did the people not know what the new payments were going to be?

I don't understand why people would take out a mortgage they knew they could not afford. It's as if they didn't know what the new payment amount would be.

[BlooInBloo]

25. Just more proof that affluent != intelligent (or prudent).

[lumberjack_jeff]

33. Ha ha

It's one of those kinds of days.