Tuesday, February 22, 2005

0% Teaser Rates And "Home Possible"

Its is obvious that the mortgage industry has thrown all caution to the wind and are making loans to anyone with a heart beat. This is now occurring under the guise of helping lower income people get into a home. My view has been they are helping people get into a home they can't afford and that is probably overvalued.

So I guess it was inevitable that with easy credit being offered by the central bank, some lenders would turn to 0% teaser loans. Here is an example: "Taking a page from credit-card companies and car makers, mortgage lenders are touting loans with rock-bottom introductory rates -- in one case, nearly 0%... the low introductory rate can last for as little as one to three months, after which the rate typically jumps above 4% or more. Plus, rates on these loans adjust frequently, meaning borrowers could see their costs rise as short-term interest rates increase".

In other words, yet another trap that could spring if rates rise or prices fall. Freddie Mac is especially eager to help the downtrodden; "Home Possible Mortgages – a new suite of low downpayment mortgage products with flexible credit underwriting standards that is expected to help thousands of families with savings issues or imperfect credit become homeowners".


At 8:50 AM, Blogger Russ Winter said...

Ben, have you come across any data regarding the amount or percentage of Calf, or other Bubble locales homeowners/speculators that will have ARMs resets this year?

At 12:11 PM, Blogger Ben Jones said...

Russ, I haven't examined that because rates are low and that hasn't become an issue..yet. In the links section you will find the Origination News and National Mortgage News sites have details on ARMs data. I will look into it.

That said, the big boom was in 2003. It would make sense that 3, 5 and 10 years following that year will be the resettle dates. The way things are looking, these folks will be upside down before they refinance.


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