Adjustable Rate Mortgages Are Not Always The Culprits Behind Foreclosures
Posted on July 28, 2008
Filed Under Repo Homes |
Although in general the accusing finger has always pointed to these – but adjustable rate mortgages are now always the culprits behind foreclosures. There is no denying the fact that those states that hosted the largest number of these adjustable rate mortgages have today the highest number of repo homes – Nevada, California, Arizona, Florida and Colorado. The link is obvious. But the reverse logic is also true. Just because a state does not have a surfeit of ARM’s does not mean that it is immune to high foreclosure onslaught.
Texas can be cited as an example. The prices of houses in Texas are low as noted in November 2007. In Texas of all the mortgages only 12% were in the ARM category. Nevertheless it was placed 14th in the national foreclosure rate. Out of every 778 houses one was in foreclosure.
David Zugheri of First Houston Mortgage based in Houston puts the blame on predatory lending for giving out loans to practically anybody with a pulse. Developers started building units farther and farther away from the main city zones because of cheap land and filled up these units with sub-prime purchasers. He puts the blame squarely on the developers who went into frenetic building activity and “non-professional loan officers.” The mood was to anyhow and somehow sell the loans. The housing market was being treated like “a used-car lot” Zugheri quipped.
In Florida the problem is acute. In November it ranked second as regards foreclosure rates according to RealtyTrac. The worst affected are the medium and low-income groups that bought houses without making any down payments. But these ARM’s soon began to triple said attorney Jane Bolin. The teaser rates and no down payment had attracted many. Those who had no houses during this time in the previous year now were owners of three or four units. Some of the families came from highly educated background but they were just not aware that predatory lending was taking place on this grand scale.
Some states are better than the others – North and South Dakota, Kansas, Iowa, Nebraska and Mississippi. They did not have much exposure to the ARM’s. Their percentage of foreclosures is also the lowest. Generally sub-prime loans tended to be ARM’s and hence the two are linked with heavy foreclosure numbers. The resetting is sending alarm bells of future trouble. The market has already been mauled and now even rate management and adjustment will not be of help as the real estate has tumbled.
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