The Foreclosure Report

Some Homeowners 'Overextended' In Chicago

The Chicago Defender reports on high-risk borrowing in that city. "Option adjustable-rate mortgages, interest-only mortgages, no-money-down and piggy-back loans have provided enticing financing for borrowers with little money of their own to invest in a home. One mortgage lender said inquiries he receives for these types of loans come mainly from first-time home buyers who may not be in a position to assume the risk."

"Leo Fronimos, mortgage specialist for Village Bank and Trust in Arlington Heights. He said nine of 10 calls he gets are for interest-only loans. 'College grads making $20,000 to $30,000 are buying condos at $150,000,' Fronimos said."

"Fronimos said that homebuyers are seeking interest-only loans for all the wrong reasons. 'They are overextending themselves, getting double the house they should be. I've got people whose mortgage rates have doubled and they can't afford it. They're selling everything they own, cars and antiques, just to pay the mortgage,' he said."

"'There's a use for those products if you're financially astute or if
you're wealthy,' said Bill Fisher, lending officer (in) Elmwood Park. 'What we have seen and read is that's not who is taking these loans. It's people who the bills are getting the best of them, so they're looking for the easy way out. When we advertise a 1 or 2 percent rate, they see the low interest and not the pitfalls.'"

"To be sure, lenders argue there is a place for exotic loans. Interest only loans, 'allow people more staying power. Since it's taking longer to sell a home, they can afford to hold out for the right price because the monthly payment is smaller,' said Jan Constantine a senior vice president at Lake Forest Bank and Trust, Lake Forest."

"'There would not be much of a principal pay down,' said Constantine. So the only benefit above renting, 'is the mortgage interest deduction.'"

posted by Ben Jones @ 9:54 AM