Why isn't the Government focusing on mortgages that will reset?

http://www.eschatonblog.com/

Recast

Subprime was just the beginning, and never was the problem. I keep making this point...

Today, there are 18,000 Alt-A mortgages in Sonoma County. They account for about 18 percent of the county’s 102,000 home mortgages — triple the U.S. average, according to First American CoreLogic, a real estate research company.

It is a far larger share of the county’s real estate holdings than subprime loans, which accounted for about 10 percent of local mortgages at their peak five years ago, according to First American CoreLogic.

Over the next three years, about two-thirds of the Alt-A borrowers in Sonoma County will see their payments jump sharply, according to First American CoreLogic. The trend will peak in the summer of 2011, the research firm projects.

At issue is just how many people have been making minimum payments, tacking on unpaid interest to the principal. Some of these people were steered into those loans by brokers who were getting side payments.

===

President Obama...where are you?

I'm not saying that it necessarily should not, but I don't really know from where a legitimate power to do that would come.

A lot, maybe most of the people with mortgages that are going to reset will be able to keep up with the payments. Should they receive whatever largesse would be given to those who can't make theirs?

How would whatever gets done be fair to those of us with fixed-rate mortgages who have no problem paying them?

Its such an obvious upcoming problem, why are we sitting here and letting it happen?

Also, when are we going to outlaw teaser rates for mortgages? That is an obvious way to mislead consumers.

Or providing financing.

Refinancing won't help. It's the outstanding principle that is too large.

Those should be outlawed too. What a recipe for disaster.

So there is no solution then? Just foreclosure?

How sad.

Most of these were from 2005 through 2007. Nobody is writing them anymore.

You're right that they were a recipe for disaster. Reading how bad these things were make you wonder how anyone thought they were a good idea:

I knew the terms were ridiculous but I hadn't seen it spelled out in raw numbers.

I wonder how it was presented to the client. Were they given exactly the schedule shown in the suit or were those calculations done after the fact?

And for banking purposes, does the bank consider the loan's face to be the 460000 or are they actually considering it to be the 460k plus the extra interest?

So many bad outcomes from this...the mind boggles.

for profit or refinance, before year 6. Of course, once the market crashed, those 2 options disappeared.

Because if they are showing a fully performing loan with a value of the original 460,000 plus interest that is really really scary.

I can't imagine being one of those borrowers. It must feel like doom is coming just around the corner. Damn.

The standard rule of thumb for "how much house can you afford" is to use three times your annual income as the amount of mortgage debt you can handle. Working backwards, with a $460K loan, that means the borrower should have a yearly income of about $153,333, or $12,777 a month. The $3,747.83 payment in this example would amount to a bit less than 30% of that borrower's gross income. That's not terribly unaffordable. If one has no other debts (and if you made over $150K a year, why should you?) then this is within the guidelines for an affordable housing payment.

However, if the loan was based on 30% of one's income being $1,479.54 (the payment level at the first year, then the person is making only about $5,000 a month, and thus, $60,000 a year. A person or couple in that situation has no damned business taking out a $460,000 loan.

Who's the bigger fool here, the borrower who borrowed that kind of loot on that low an income, or the lender who lent it to them? And why should the government bail either party out of this foolishness?

Neither. The fool is the person that ended up buying the mortgage.

so I'm not sure the 30% would have been calculated on legitimate income period.

though as he said it would not save the people who were already behind on their payments and probably never had any business getting mortgages in the first place. The plan was meant to address people who were facing reset, but had been keeping up with their current payments.

I'm not sure a possible reset 2 years from now qualifies. Or does it? Also, we should be seeking these people out before hand.

You can't stop prices from falling. Why waste taxpayer money trying to delay the inevitable?

Besides, when most of these mortgages recast, the banks and the economy will likely be in better shape and able to withstand the correction.