Home Loan Disaster Looming

A study done by a Wall Street rating service paints a "scary" picture for many home buyers and mortgage holders. "They allow people to qualify solely on the basis of a low initial payment, rather than what they can truly afford to buy..then the mortgages morph into money-gobbling monsters that can push consumers into payment shock, default and foreclosure almost overnight."

How fast can it change? One example, "Their payment in the 37th month rockets to $2,184, an overnight increase of $917 that would put a severe strain on most new homeowners. In a faster-rising rate environment, the shock would be even worse. By year 10 the owners would be paying close to $2,700 a month."

Readers of this blog won't be surprised to hear this. "Stated-income or no-documentation loans allow borrowers to dispense with the usual proof of income and proof of assets such as bank deposits. Why don't people with W-2 documented salaries want to show them? You guessed it: Many of them are buying houses with price tags they can't really afford. And if the economy falters or their incomes drop, they will be the first into foreclosure."