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First wave: Subprime
Second wave: Alt-A/Option ARM
Third wave: Prime
http://www.washingtonpost.com/wp-dyn...r=emailarticle
Originally found via Patrick.net
Some excerpts:
Doesn't miss a trick, this Carol Byrd. Wonder where all the $350K she made at the peak went?
Second wave: Alt-A/Option ARM
Third wave: Prime
http://www.washingtonpost.com/wp-dyn...r=emailarticle
Originally found via Patrick.net
Some excerpts:
Before Robin Bohnen and her husband, Shane, bought a $1.16 million Mediterranean-style house in an upscale Southern California suburb two years ago, they were not cash-strapped, debt-ridden or credit-impaired.
Now they are all of the above. Soon they also may qualify for one more distressing category: home lost to foreclosure.
Now they are all of the above. Soon they also may qualify for one more distressing category: home lost to foreclosure.
The home to the left is listed for $699,900 and the other for $725,000. She and her husband owe $932,000 on their house, so they're facing at least a $200,000 shortfall. That's not what they expected when they bought their home two years ago. The economy looked good then, the housing market was still thriving and the house seemed like a steal. It was the cheapest available in the exclusive gated community that they had been eyeing for some time.
A lender offered them a mortgage that allowed them to pay interest only for the first five years. They were not asked to document their income, which put their mortgage into the class of loans known as "Alt-A," so called because they are an alternative to a prime (or A) mortgage.
It turned out to be a risky decision. What galls the Bohnens is that they brought $233,000 to the table when they bought the house -- cash they had pulled out of their previous home, which was under contract for sale. But the sale fell apart just before the scheduled closing date, and while the agent was confident of finding a new buyer at the time, the house never sold. It is now in foreclosure.
A lender offered them a mortgage that allowed them to pay interest only for the first five years. They were not asked to document their income, which put their mortgage into the class of loans known as "Alt-A," so called because they are an alternative to a prime (or A) mortgage.
It turned out to be a risky decision. What galls the Bohnens is that they brought $233,000 to the table when they bought the house -- cash they had pulled out of their previous home, which was under contract for sale. But the sale fell apart just before the scheduled closing date, and while the agent was confident of finding a new buyer at the time, the house never sold. It is now in foreclosure.
Once equity vanishes, income matters far more than the kind of mortgage a borrower has. Luke Rizzo, another Riverside County homeowner, took out a 30-year, fixed-rate mortgage in 2003. He put down $125,000, but he, too, is teetering on foreclosure's edge.
In 2006, Rizzo lost his job as an information technology manager at Lockheed Martin and sunk deep into credit card debt as he tried to keep up with his mortgage payment. He bought the house for $460,000. The house next-door recently sold in foreclosure for $340,000. His debt has climbed to $498,000 because he took out a $200,000 home-equity line. That money was spent on landscaping and living expenses.
In 2006, Rizzo lost his job as an information technology manager at Lockheed Martin and sunk deep into credit card debt as he tried to keep up with his mortgage payment. He bought the house for $460,000. The house next-door recently sold in foreclosure for $340,000. His debt has climbed to $498,000 because he took out a $200,000 home-equity line. That money was spent on landscaping and living expenses.
For all those reasons, Carol Byrd, a real estate agent, does not want to walk away from her home. But she will if she has to, she said.
Three years ago, Byrd bought a home for $525,000, in the city of Riverside, getting a no-money-down mortgage. Back then, she was selling 50 homes a year and earning roughly $350,000 annually.
Byrd makes nothing close to that now, but her lender thinks the potential for that income is still there. To keep her in the mortgage, the lender has agreed to postpone her foreclosure until August and defer half of her payment, a temporary savings of $1,600 a month. The unpaid portion will be tacked onto future payments.
Byrd said the arrangement would not work long term. She wants her loan modified to reflect the current value of her house -- about $250,000. If not, then she's at peace with the consequences.
"If I have to rent, I have to rent," she said. "It's not the end of the world."
Three years ago, Byrd bought a home for $525,000, in the city of Riverside, getting a no-money-down mortgage. Back then, she was selling 50 homes a year and earning roughly $350,000 annually.
Byrd makes nothing close to that now, but her lender thinks the potential for that income is still there. To keep her in the mortgage, the lender has agreed to postpone her foreclosure until August and defer half of her payment, a temporary savings of $1,600 a month. The unpaid portion will be tacked onto future payments.
Byrd said the arrangement would not work long term. She wants her loan modified to reflect the current value of her house -- about $250,000. If not, then she's at peace with the consequences.
"If I have to rent, I have to rent," she said. "It's not the end of the world."
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