This was such a common sales pitch to many subprime borrowers, "This is just a band aid loan". "We'll just refinance you in a couple of years once your credit clears up." The problem is that there is no way to refinance most of these folks.
Now the problem has hit the jumbo market as well. Since Jumbo mortgage were not sold to Freddie Mac or Fannie Mae there is hardy a market left for buyers of these types of mortgage on Wall Street.
[Borrowers] are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.
The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.
“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Conn. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”
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Many of these borrowers took out loans they really could not afford. Loans like ARM's with low teaser rates or Pay-Option ARMs where they did not even make payments that covered the monthly interest. These people committed financial suicide when they signed their loan documents. Most should have know better but they let greed and keeping "up with the Jones" drive their decisions to live in McMansions. Others have had unexpected things happened to them such a job loss or illness but I would venture that the majority just bought the biggest house they could get at the time.
As more of these jumbo loans default, prices will continue to drop and Banks will continue to have losses. It's a simple supply and demand equations with the job outlooks as the wild card.
Now the problem has hit the jumbo market as well. Since Jumbo mortgage were not sold to Freddie Mac or Fannie Mae there is hardy a market left for buyers of these types of mortgage on Wall Street.
[Borrowers] are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.
The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.
“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Conn. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”
……..
Many of these borrowers took out loans they really could not afford. Loans like ARM's with low teaser rates or Pay-Option ARMs where they did not even make payments that covered the monthly interest. These people committed financial suicide when they signed their loan documents. Most should have know better but they let greed and keeping "up with the Jones" drive their decisions to live in McMansions. Others have had unexpected things happened to them such a job loss or illness but I would venture that the majority just bought the biggest house they could get at the time.
As more of these jumbo loans default, prices will continue to drop and Banks will continue to have losses. It's a simple supply and demand equations with the job outlooks as the wild card.
So here the part where I tell you about myself. Nothing too exciting. I have been in various aspects of the Mortgage industry for the past 20 years.
From running offices, multiple offices, regions, overseeing Underwriting and productions from both Banker and Broker sides. I have seen many cycles and
expect to see more.
I have read many blogs but never came across such a well written blog.Thanks for posting.
Refinance Mortgage Canada