Yet another report appears in USA Today about mortgage repayment problems. The core issue continues to be the adjustable rate mortgage that appeared so tempting to people needing money. As one borrower tells the paper: "At the time of the loan, they tell you, 'Well, it may go up, but it's probably going to go down.' You want it to be so, so you believe it."
Nearly 25 percent of mortgages in recent years — some 10 million — were written with adjustable interest rates. And many were taken out by people with bad credit, says the Mortgage Bankers Association. Another industry player tells the paper that the big time bomb is in California where 60 percent of loans in 2005 were interest-only or payment-option ARMs. Borrowers went for those loans because of the soaring price of real estate in California. The paper reports that foreclosing on these bad loans could total $100 billion.
Southern Nevada doesn't have that high percentage of these loans but plenty of buyers were tempted into these loans thinking they were only staying in town a few years or moving to a better house sooner rather than later. So we'll get some echo effect from that.
And as the Business Press reported last week, there is plenty of nervousness among local bankers who think that the interest-only mortgages and ARMs c0uld create "a perfect storm."
This looks like a replay of the massive push to give credit cards with higher limits than their owners can afford. The interest and additional fees made those cards big earners for the banks. When mortgages were written for the origination fees and re-selling, rather than the traditional worthiness of the borrower, this kind of pain and loss is the result.
