Saturday, August 26, 2006

'An Unbelieveable Increase': Massachusetts

The Taunton Gazette reports from Massachusetts. "A disturbing number of homeowners in Greater Taunton have not carefully enough been thinking through just what it takes to own a home. Some intentionally inflate their earnings on loan applications, or are encouraged to do so by unscrupulous mortgage originators, in order to get approved."

"Many have previously opted for adjustable-rate loans that blow up in their face with monthly payments they can't afford as soon as interest rates rise. And others get starry-eyed at the mere thought of owning a home and end up signing onto a deal they simply can't afford."

"A 2006 UMass Boston/Northeastern University study shows Massachusetts as tops in the country in terms of having the highest housing price appreciation index from 1980 to 2005; 618 percent from first-quarter 1980 to third-quarter 2005. That represents a jump in median home value from $48,400 in 1980 to $378,758 in 2005."

"The national price appreciation level for the same period was 273 percent; the state with the second highest level was New York, which posted a 511 percent increase."

"Also telling is the Massachusetts home value to personal income ratio. In 1980 the median per capita income in the Bay State was $10,602, which results in a ratio of 4.57. By 2005 median personal income was just under $44,000, but median home value had risen to $379,000, resulting in a ratio of 8.67 percent."

"Mary Ellen Rochette, executive director of the city's non-profit that helps low-income families attain home ownership, is convinced too many inexperienced buyers have been making seriously bad decisions. 'Two years ago I was getting one to two calls a week from people going through a foreclosure,' Rochette said. 'Now it's one a day. That's an unbelievable increase.'"

"Rochette largely blames the allure of adjustable rate mortgages coupled with an uneducated public for the recent ratcheting up in the number of foreclosures. 'They're so excited about getting a mortgage that they don't read the fine print,' she said."

"She also points to the peril of so-called 'stated income' loans. Rochette recounts the case of a professional cook earning $36,000 a year who stated on a loan application he was making $68,000 annually. She said his wife, a teacher's aid who was paid little more than minimum wage, followed suit claiming she made $40,000. Rochette said after making the first few payments the couple realized they wouldn't be able to keep up with the payments."

"Kristin Lagersstadt recalls a girlfriend with a daughter and granddaughter who took out a loan with a well-known mortgage company, knowing full-well she couldn't afford the monthly payment. 'The mortgage payments were more than her take-home pay,' she said."

"'Some people want a house so badly they want to believe it,' she said, of first-time buyers who persuade themselves into believing they'll somehow find a way to pay for a house they can't afford."

"Rochette said one Raynham family wasn't nearly so fortunate. The husband is a truck driver earning approximately $50,000 to support his wife and four children. After falling three months behind in their payments the family hasn't been able to find a bank willing to take the risk of refinancing them. 'It looks like the only way out for them is to sell,' she said."

"Worse, and perhaps more pathetic, was a woman who called Rochette one night in tears. 'She said they were closing tomorrow and wanted to know if there was anything I could do,' she said. 'They just don't think it's going to happen to them.'"


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