The Observation Deck

Hey Justine - There are worse things in this world than Pat Benatar! LOL!

Honestly, Dee, I took your comment as sincere and important and not a snipe at me or my comments at all.

Yes, by and large, owners/managers of investment property tend to be more sophisticated and lenders tend to have tighter restrictions. However, during the real estate boom, first time investment property owners/managers were not as savvy and the lenders had an array of financing packages to offer.

I, for one, pulled equity out of my triple to help cover the down payment on another home I bought. This was a solid transaction because it involved two solid homes, an incredibly solid mortgage broker (he wouldn't have sold me an interest only loan even if I had begged) and an owner, me, who had a long-term commitment to these properties and no intention of flipping.

I know one case where the buyer/investor purchased two 4 unit apartment buildings and refinanced a year later to interest only ARM loans so that equity and rent could be used to purchase and support his other business. Well, his other business isn't panning out and the rent isn't covering the notes on the two apartment buildings which are both in foreclosure. He can't refinance because the values have deflated and he doesn't have the cash to cover the difference between the then and now appraisals.

While I don't think the sky is falling on Lakewood, I am concerned. While we wait for the new owners to take advantage of deals, property values will likely fall across the board. If the county makes adjustments to values and taxes, school district and municipal revenue will also fall.

David,

And it will be the "good" ones like you, and all the homeowners who budget and pay their mortgages on time and work second jobs if they need to, who will ultimately pay for all the ones who walk away. I appreciate your posts and all the posts on this subject that are no longer one sided, but show the reality. I hope solutions will follow in this city. There are a lot of good ones on here.

David, thanks for the info!

[quote="sharon kinsella"]Two foreclosed properties that I know of had many improvements done to them. The problem came when house payments went from $700.00 a month to $1,200 a month without warning. [/quote]

How can payments change so much without warning? Didn't these people realize they had adjustable rate mortgages? Didn't they bother to read the contract where it explains when the adjustments will be made, and the limits on those adjustments? Did they go ahead and spend money on improvements with no consideration that their note would be increasing? Not to be callous, this sounds like a self-inflicted wound!

So if you give someone a teddy bear with a time bomb inside, is it the recipient's fault for not hearing the ticking?

Stories like Sharons are well-documented. I have a work associate whose payments went up $900 a month.

What would have been better for the overall economy? Spending a little more on ink to print in big black bold letters 'WARNNING!!! YOUR PAYMENTS WILL SIGNIFICANTLY INCREASE IN THREE YEARS"? (A green skull and crossbones would have helped too)

Or dealing with the global financial chaos this whole mess has created?

I haven't gotten through all three pages yet.. this thread exploded in the last day that I haven't been on here.

But it DOES concern all of us. Yes, property values are one reason. But has anyone mentioned the other issues?

Abandoned houses are ripe for the picking of copper plumbing and other resalable metals or materials. This could mean a gas explosion or at the very least, render the house unable to be sold. This also means increased police patrols to keep those houses from getting ransacked... which takes away from my own safety provided by the police because they will be too busy with these other issues.

It is so far reaching here... and we haven't seen the half of it.

Dee Martinez wrote:So if you give someone a teddy bear with a time bomb inside, is it the recipient's fault for not hearing the ticking?

That analogy isn't even close to being comparable. When you sign a contract, it is your reponsibility to read it. If you don't understand, don't sign it or have someone explain it to you. These interest rates did not just jump up with no warning.

Dee Krupp wrote:

Dee Martinez wrote:So if you give someone a teddy bear with a time bomb inside, is it the recipient's fault for not hearing the ticking?

That analogy isn't even close to being comparable. When you sign a contract, it is your reponsibility to read it. If you don't understand, don't sign it or have someone explain it to you. These interest rates did not just jump up with no warning.

If it were something as inconsequential as a health club membership or a cell phone contract, I might agree. But the subprime crisis has effected almost everyones investments everywhere.

What would have been the harm in requiring that lenders highlight the possible negative ramifications of an ARM.? I have to look at warning labels on meds or ladders or even Happy Meals. We can feel superior by wagging our finger at all the dummies who bought ARMs or other gadget loans, but we're the ones paying the price.

My question to all you finger waggers - why weren't you watching the hen house?

Where were you when these loans were made?

Do you feel really comfortable with your place in the universe right now?

If so, what's going to happen to you if the bottom falls out from under your world?

I hope you are shown more understanding and compassion than you show to others. Woulda, shoulda, coulda is all well and good, but I don't see any of you blaming the theives.

Will...

I had the exact same thought when I read that post, but given so many other posts on this subject, I knew what the reaction would be. I'm personally dismayed that anyone is even considering freezing adjustable rate loans at the teaser level. Now pretty much everyone who took out an ARM is going to cry poor mouth. Talk about your moral hazard....

Dee....

FYI for as long as I can remember ARM loans have been accompanied by (1) a one-page ARM Historical Disclosure that explains what would happen to your payment if interest rates go up, and (2) the CHARM booklet (Consumer Handbook for Adjustable Rate Mortgages. Seems like plenty of disclosure to me.

All...

I think most ARM borrowers knew that their payments would adjust upward. They just figured (1) that they could either make the payment, (2) could refinance into a fixed when the payment increased or (3) didn't care.

It's not that I don't care for these people. It's just that, if you freeze the teaser rates, you increase the cost of borrowing for everyone else, new families who want to buy a house or start a business. That's just not right.

You all haven't been paying any attention to what Justine and I have been trying to tell you.

Many of these brokers were sleaze bags. I trained with a firm here and quit after the training. They were telling people to skip the details, flip thru pages and confuse the issue altogether. They hired salespeople and closeres and appealed to those who were unscrupulous.

Charm booklet? I never saw one. Went out on sales calls with them. Watched people sign papers. Never came up at training, never saw one.

You're all assuming that good business practices were followed.

Well they weren't.

Tim - aren't you a financial expert? Sure you would understand these things. How many people who were hooked with an ARM were financial experts? If they were they wouldn't have agreed to it.

Tim Liston wrote:FYI for as long as I can remember ARM loans have been accompanied by (1) a one-page ARM Historical Disclosure that explains what would happen to your payment if interest rates go up, and (2) the CHARM booklet (Consumer Handbook for Adjustable Rate Mortgages. Seems like plenty of disclosure to me.

Finally, a bit of reality.

Everyone who took out an ARM was told exactly what their payments were going to be in future years. There are only so many ways you can say:

On June 1st, 2009 your interest rate will increse to 8% and your principal and interest payments will increase from $830 to $997.

If people have trouble understanding that perhaps they should find a place to rent.

Bill - NO THEY WEREN'T.

That's the point!