Monday, October 17, 2005

'A Disaster From The Beginning'

The Detroit Free Press has some numbers on homeowners. "Mike Shannon is a realtor and foreclosure specialist in Dearborn Heights. He handles foreclosure sales for more than 60 banks in southeast Michigan. He acknowledges that the state's stagnant economy and the struggling auto industry are driving the high number of foreclosures, but he also cites poor consumer decisions, such as lack of budgeting and overspending, for the problem."

"Another culprit, Shannon said, is the prevalence of sub-prime lending programs, those that help borrowers with bruised credit obtain mortgages at higher interest rates, and no-money-down, interest-only mortgages."

"'The leniency in lending leaves people in jeopardy, especially when they're doing 100% financing, using 80% as the primary mortgage and a 20% equity line,' he said. 'It really becomes a problem if that financing is based on a two-person income household and something happens.'"

"Nationally, 10% of subprime borrowers are late with their mortgage payments, while 3% of all sub-prime borrowers are in foreclosure, according to the mortgage bankers group. In Michigan, nearly 16% of sub-prime borrowers are delinquent and 9% are seriously delinquent or in the foreclosure process."

"'The real issue today is not about being able to qualify for the financing. The issue is an inability to accumulate the money for a down payment or closing costs,' (mortgage broker Tim) Ross said. 'That is why these products have appeal to many.'"

"Shannon said many people fail to adjust to a new home and mortgage payments before they start racking up credit card and other debt. 'If you go in many of these houses in foreclosure, you're going to find new furniture, you're going to find big-screen TVs with cable, you're going to find newer cars, a BMW and Lexus in the driveway,' Shannon said. 'What these people don't realize is that they were upside down from day one. They've gotten into the house with less than 3% down, and sometimes they're putting no money down at all. They've even rolled the closing costs into the mortgage.'"

"'Even if they wanted to sell to get out of a bind they can't, because they owe more than they have equity,' he said. 'It was all a disaster from the beginning.'"


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