The Foreclosure Report

Exotic Loans 'Too Good To Be True'

The Associated Press reports on some tough lessons about exotic loans. "Homeowners nationwide who obtained nontraditional mortgages when rates hit historical lows are facing similar challenges as monthly mortgage payments begin to rise. At the same time, the market is softening in some areas, preventing houses from growing in value as quickly as expected."

"'It all leads to questions about how well-prepared consumers are, not only for the payment shock that might be lurking out there but for their monthly payment,' said Barbara Ryan, of the FDIC."

"As soon as Lorie Limbaugh heard about a 1.25 percent interest rate on a mortgage loan, she figured it was too good to be true. Things progressed smoothly with their $275,000 adjustable rate mortgage until the rate began to climb, it's now 6.25 percent, despite what they had been told. Today, they are facing a refinancing penalty and are unable to financially help a son who wants to attend a trade school."

"'We can't believe it,' said Limbaugh, who lives in tiny Larkspur about 35 miles south of Denver. 'We were at 5.7 (percent). We should have stayed where we were at.'"

"About 53 percent of Colorado households cannot afford to buy one of the state's median-priced homes, a rate second only to Hawaii's high-priced housing market, according to a recent FDIC study. In addition, 53 percent of mortgages issued in Colorado in the second quarter were ARMs, second only to California."

"On a recent Saturday morning, Enie and Tony Brooks joined a small group at a foreclosure prevention workshop, hoping to hear a way to save their home of 17 years. The couple obtained an ARM for $146,000 in 2003 and the rate has climbed from 7 percent to 9.5 percent, and could increase up to 11 percent. Today, their payment is about $1,200 a month. 'It's already astronomical what we have to pay,' Enie Brooks said. 'We're not in foreclosure but, you know, paycheck-to-paycheck living. Things are getting rough. We're just trying to hold onto it,' she said."

posted by Ben Jones @ 2:28 PM