The Foreclosure Report

Loans A 'Built-In Financial Timebomb': Mass.

The Beverly Citizen has this from Massachusetts. "Second-quarter home foreclosures are up across the state and in Beverly, according to figures tracked by ForeclosuresMass.com. The combination of a cooling housing market, increased interest rates and creative financing like no-interest mortgages has put a fiscal squeeze on homeowners and left some unable to pay ballooning monthly mortgage payments."

"'What we’re seeing is a perfect storm,' said Jeremy Shapiro, president of ForclosuresMass. That perfect storm is behind the foreclosure increases, say both Shapiro and Thomas McElligott, vice president and senior lender at Beverly Cooperative Bank."

"Statewide, foreclosures are up 66 percent over the second quarter of 2005 and up 114 percent over 2004. In Beverly, the city has already recorded 53 foreclosures through June 30 of this year. That’s more than all of 2005, which saw 42 foreclosures. In 2004 Beverly recorded only 36 foreclosures for the year."

"Homeowners who gambled on dropping rates and increasing housing prices find themselves in a financial vise that is squeezing them with mortgage payments increasing anywhere from $300 a month to almost $1,000 per month."

"A homeowner with a $300,000 mortgage and an adjustable-rate mortgage has seen payments go up about $240 a month, McElligott said. If that homeowner, with the same $300,000 mortgage, had an adjustable-rate, interest-only mortgage, that monthly mortgage payment would go from about $1,250 to $1,980."

"McElligott said his bank stays away from such 'creative' financing precisely because of that built-in financial time bomb. 'At some point you have to pay,' said McElligott. 'Many consumers are only looking at their monthly payment. They don’t look ahead.'"

"Worse, said Shapiro, once in a creative-financing bind, many homeowners can’t get out by refinancing, even if they do look that far ahead. 'They are damned if they do and damned if they don’t,' said Shapiro. 'They have an adjustable rate and see down the road and try to get into a 30-year fixed. But they either can’t afford the 30-year payment or they don’t qualify. Sometimes, both.'"

posted by Ben Jones @ 2:44 PM