A reprint from The Wall Street Journal today tells all you need to know about what's happening in the American mortgage lending market.
[...]Hmm, "built for failure," eh? That's just CRAZY-TALK, MISTER! And, if you think your situation is untenable now, then just you wait until the price of 9-month benchmark crude goes to €120/bbl.
Credit-counseling agencies say that in the past few months they've seen a growing number of homeowners pinched by rising mortgage payments. Neighborhood Housing Services of New York City says it's been "flooded" with calls from borrowers who took out ARMs two years ago and whose rates are now resetting for the first time. And Consumer Credit Counseling Services of Atlanta, which works with borrowers nationwide, says it has tripled its housing counseling staff in the past six months to keep up with increased demand.
Until recently, most mortgage-payment problems were an unfortunate byproduct of major life changes, such as job loss, medical problems, divorce or a death in the family. But for the new wave of troubled borrowers, the problems stem largely, or in part, from the structure of their mortgage, housing counselors say.
In the past, the home mortgage "was a steadying influence; it neither rose nor fell over time," says Elizabeth Warren, a Harvard Law School professor who has studied consumer bankruptcies. "All that has changed in the last half-dozen years," she adds. "The mortgage payment is now more variable than any other expense for millions of people. We're working in completely uncharted territory."
Rising mortgage rates are causing problems for first-time home buyers such as Edward Snyder, a product manager who bought his house in St. Paul, Minn., two and a half years ago. Mr. Snyder financed the $210,000 purchase with a $168,000 interest-only ARM that carried a fixed-rate of 6.15 percent for the first two years and a $42,000 second mortgage with a 9.4 percent rate that is fixed for the first three years.
Mr. Snyder says he was stretched even before a rate adjustment on his ARM boosted his monthly payments by $200 in May. Since then, he has fallen behind on his water bills, car payments and student loan. "Now, it's a choice of what gets paid late," Mr. Snyder explains. Last month, he received a letter from his lender with the words "rate increase" on the envelope. Mr. Snyder says he hasn't opened it "because it gets too discouraging." This week, he's meeting with a mortgage broker to discuss his options.
"If I had been aware both loans were interest-only, I would have probably turned the loan down," says Mr. Snyder, who says that the terms of the mortgage were never properly explained to him. "I believe this loan is built for failure. There's no means to build up equity."