posted on Oct, 29 2012 @ 05:49 PM
Originally posted by bg_socalif
Those ARM's can come back and bite you in the hindquarters.
A poor financial decision on their part put them in this bind. Amazing how people have no idea what they are signing.
But of course it's the bank's fault. They must've forced them to sign those mortgage papers under duress.
ARMs are typically tied to the Prime Lending Rate, though, and that's at historic lows and has been for four years.
The real thing that kills people is "balloon loans". Here's how that worked, prior to 2008:
1) Person wants to buy house they can't even begin to afford
2) Bank offers "interest only" (if that) payment loan that allows them to make the mortgage payment
3) Loan only works because after some period of time (typically 5-10 years) there is a huge balloon payment that "catches up" the payments
4) Person can't make the balloon payment, then gets foreclosed on
Typically, the person was convinced to take a loan like this because, for as long as anyone could remember, real estate appreciated, so after ten
years of interest only payments, the value of the home had risen to the point that it could be refinanced to get the balloon payment. After the
housing crash, that was no longer the case, and so I'd guess that almost everyone who had a balloon payment coming due post-2008 has lost their
Now, I will certainly agree that banks made lots of poor decisions and played no small role in convincing people to take out loans that they probably
shouldn't have, but where is the real
problem in that process?
Person wants to buy house they can't even begin to afford
No one is entitled to a house, much less a "mc-mansion" with six bedrooms, two kitchens and a four car garage. As a starter home. I live in a
neighbourhood that is packed with 30 somethings in 3000+ sq ft homes that are working themselves to death and missing the lives of their 1.5 children
as they struggle to pay for something that they don't need. It's sad, really.