BobRip
Elite Member
Greenspan is retired, but he still has way to much say so. People believed him for many years and they still believe what he says.
American Dream Rant.....
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Bob_Skurka
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Well here is some of the LARGE PRINT for one of the loans I found, the small print might look worse, but this looks plenty bad. Any buyer with common sense will look at this loan and realize that by choosing some of the payment options they are actually losing equity! Further, some of these options may work for people to get into a place that they intend on moving out of in a couple years, but if the market declines, or their plans change due to whatever circumstances, there may be no way to recover financially.
I highlighted some of the financial traps in red, but remember this is a nationally advertized loan that is sold over the TV and the internet so many people probably take advantage of it?
I highlighted some of the financial traps in red, but remember this is a nationally advertized loan that is sold over the TV and the internet so many people probably take advantage of it?
Payment Options
Each month, you can select one of four mortgage payment options that best fits your needs - the minimum payment, the interest-only payment, the 30-year fully amortizing payment or the 15-year fully amortizing payment. You pay the amount you want, as long as your payment is at least your minimum payment amount. Plus, your interest rate is fixed for the first five years or seven years.
Minimum Payment
Why is the minimum payment so low?
The minimum payment is the lowest of the four payment choices available. When you choose to pay the minimum payment, you're paying less than the full interest that is due for that month. By deferring your interest, the unpaid interest is added each month to your outstanding principal loan balance.
If you defer payment of interest, your outstanding loan amount could exceed the value of your home. This may affect your ability to refinance your loan or sell your home since you will owe more than what your home is worth. A higher loan amount may also result in larger payments down the road.
Each month, you can select one of four mortgage payment options that best fits your needs - the minimum payment, the interest-only payment, the 30-year fully amortizing payment or the 15-year fully amortizing payment. You pay the amount you want, as long as your payment is at least your minimum payment amount. Plus, your interest rate is fixed for the first five years or seven years.
Minimum Payment
- The minimum payment is designed to provide you with up to 50 percent lower than a standard principal and interest mortgage payment.
- Your minimum payment is calculated based on your interest rate minus three percent for the first five or seven years.
- This option is available for the first five or seven years, or until the loan reaches the maximum limit of 115% (New York is 110%), whichever occurs first.
- If you reach your maximum limit, your minimum payment automatically converts to an interest-only payment.
- The interest-only payment is the minimum amount required to repay the full interest that is due each month based on the current rate and current loan balance.
- Interest-only payments can be made anytime during the first 10 years of the loan.
- After the tenth year, the loan becomes a fully-amortizing six-month adjustable rate mortgage with a 20-year amortizing period.
- The 30-year amortizing payment is the amount needed to payoff your loan in 30 years, based on the initial fixed interest rate and current loan balance.
- The 15-year amortizing payment is the amount needed to payoff your loan in 15 years based on the initial fixed interest rate and current loan balance.
Why is the minimum payment so low?
The minimum payment is the lowest of the four payment choices available. When you choose to pay the minimum payment, you're paying less than the full interest that is due for that month. By deferring your interest, the unpaid interest is added each month to your outstanding principal loan balance.
If you defer payment of interest, your outstanding loan amount could exceed the value of your home. This may affect your ability to refinance your loan or sell your home since you will owe more than what your home is worth. A higher loan amount may also result in larger payments down the road.
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I've seen a number of people I work with in total shock the moment they realize they owe their lender more than they borrowed... even after several years of payments... the wonders of negative amortization!
Thanks Bob, keep the info coming...
Thanks Bob, keep the info coming...
IH3444
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Not only they owe more than they borrowed. 
There was a piece on the financial news that people who default on their loans, are then in hot water also with the IRS for taxes. Seems that the IRS look upon the subprime loan as income, so the defaulters then are charged income tax accordingly for the amount of unpaid loan. That should make you think twice before entering into such a contractual agreement. The only time I could se doing this is for just an investment, and then selling the property. It's like the sword which is heald by a thread hanging over your head. Yes, eek again.....
There was a piece on the financial news that people who default on their loans, are then in hot water also with the IRS for taxes. Seems that the IRS look upon the subprime loan as income, so the defaulters then are charged income tax accordingly for the amount of unpaid loan. That should make you think twice before entering into such a contractual agreement. The only time I could se doing this is for just an investment, and then selling the property. It's like the sword which is heald by a thread hanging over your head. Yes, eek again.....
Bob_Skurka
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For real estate investors who "flip" houses in reasonably short order probably have the best reason to utilize these loans. I would never recommend paying the minimum payment, but "flippers" would certainly benefit taking out a short term interest only loan which would allow them to pay off the principle at the time they resold it.IH3444 said:
Bob_Skurka
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I happended to be reading the news today and saw a headline that made me think of this thread.
Here is a link to the entire article: Print Story: Subprime bust forces families from homes on Yahoo! News
But here are some snippets from the article that I found interesting:
Subprime bust forces families from homes
By ADAM GELLER, AP National Writer 29 minutes ago
The lights are still on inside Foreclosure No. A200642668 — so while there's time, have a look around.
Here's the living room, still covered in the worn blue shag Angela Sneary always intended to replace with the sheen of hardwood. And downstairs, through a curtain of plastic beads, is the basement where husband Tim was going to knock out a wall and put in a foosball table.
Step this way and the Snearys point out the places where they never could find the cash to hang a ceiling fan, install a hot tub, replace the siding ... a long list of abandoned ambitions that seem almost too big to squeeze into the modest four-bedroom tri-level.
They ran out of money first. Then, they ran out of time. Soon, they'll almost certainly be out of a home.
The new family grew fast — a year after Amanda was born, Timmy Jr. followed and three years later came Steven. Tim found work doing landscaping in Denver's mushrooming subdivisions. Angela got a job working for an insurance company. Eventually, they combined to make around $55,000 a year.
The couple set out to look at homes . . .They loved the second house the agent showed them. . .
It cost $204,000. "We thought we were getting a deal," Tim says.
The agent said he'd find them a mortgage, no money down. The Snearys say they never thought to shop around.
The Snearys say they expected to borrow at a fixed rate of 6.5 percent. That would put monthly payments at about $1,290, a little more than rent.
But at the closing in August, all the numbers were higher. The Snearys were offered two loans, both from a Texas subprime lender, Sebring Capital Partners. The first, for 90 percent of the purchase price, was at 8.31 percent, set to adjust after two years. The second, for the remainder, was at 13.69 percent.
The house would cost $1,623.80 a month to start — and it was almost certain to rise.
Looking back, Tim wishes they'd asked more questions or considered walking out. But everything was in boxes, and they'd given notice. So they eyed each other nervously, and agreed to work more hours. Then, they signed the papers.
___
For a few months, anyway, they kept pace with the costs. But as 2004 ended, Tim's employer — who had already laid him off and called him back — sent him home for good . . .
the Snearys immediately fell behind, missing two payments . . .
The Snearys' monthly bill jumped to $1,920. . .
The couple fell further behind. The lender set up a new payment plan. Monthly costs jumped to $2,100. Angela began draining her small 401(k).
If the Snearys could make it through 2006, maybe they could refinance and dig out.
Now, though, there was another problem.
They still owed nearly all of their loan. But their home was worth much less in a real estate market slowed by economic uncertainty and bloated by new construction. The couple, convinced they'd overpaid, couldn't refinance or sell.
Instead, they neared the two-year mark, when their interest rate would jump.
___
But the next time will be different, Tim and Angela say. They'll stay within their means. They'll borrow more intelligently.
Ok, look at the numbers here, they wre looking at a house that was 4 times their total income.
The combined GROSS income was $55,000. Presume a 25% tax bracket (state & federal combined), their take home income would be roughly $41,250 or almost $3440 per month. They have 3 kids. A starting mortgage payment of $1624 per month means that almost 50% of their income is going to the mortgage. But then as the loan matured, the payments went up to $2100 which is 61% of their income.
They overpaid. They didn't shop for a mortgage. They went into closing not knowing their payments. They planned for payments under $1300 per month but got payments at closing over $1600 per month which they could not afford without overtime. The knew that and didn't walk away. They didn't plan ahead to budget for the upcoming rate increases. I'm not trying to pick on these folks, but their story illustrates the points that have been made several times in this thread.
All through the article it states how easy it is to get a loan. The family's sad story shows what happens when people don't take the time to do their own homework.
Here is a link to the entire article: Print Story: Subprime bust forces families from homes on Yahoo! News
But here are some snippets from the article that I found interesting:
Subprime bust forces families from homes
By ADAM GELLER, AP National Writer 29 minutes ago
The lights are still on inside Foreclosure No. A200642668 — so while there's time, have a look around.
Here's the living room, still covered in the worn blue shag Angela Sneary always intended to replace with the sheen of hardwood. And downstairs, through a curtain of plastic beads, is the basement where husband Tim was going to knock out a wall and put in a foosball table.
Step this way and the Snearys point out the places where they never could find the cash to hang a ceiling fan, install a hot tub, replace the siding ... a long list of abandoned ambitions that seem almost too big to squeeze into the modest four-bedroom tri-level.
They ran out of money first. Then, they ran out of time. Soon, they'll almost certainly be out of a home.
The new family grew fast — a year after Amanda was born, Timmy Jr. followed and three years later came Steven. Tim found work doing landscaping in Denver's mushrooming subdivisions. Angela got a job working for an insurance company. Eventually, they combined to make around $55,000 a year.
The couple set out to look at homes . . .They loved the second house the agent showed them. . .
It cost $204,000. "We thought we were getting a deal," Tim says.
The agent said he'd find them a mortgage, no money down. The Snearys say they never thought to shop around.
The Snearys say they expected to borrow at a fixed rate of 6.5 percent. That would put monthly payments at about $1,290, a little more than rent.
But at the closing in August, all the numbers were higher. The Snearys were offered two loans, both from a Texas subprime lender, Sebring Capital Partners. The first, for 90 percent of the purchase price, was at 8.31 percent, set to adjust after two years. The second, for the remainder, was at 13.69 percent.
The house would cost $1,623.80 a month to start — and it was almost certain to rise.
Looking back, Tim wishes they'd asked more questions or considered walking out. But everything was in boxes, and they'd given notice. So they eyed each other nervously, and agreed to work more hours. Then, they signed the papers.
___
For a few months, anyway, they kept pace with the costs. But as 2004 ended, Tim's employer — who had already laid him off and called him back — sent him home for good . . .
the Snearys immediately fell behind, missing two payments . . .
The Snearys' monthly bill jumped to $1,920. . .
The couple fell further behind. The lender set up a new payment plan. Monthly costs jumped to $2,100. Angela began draining her small 401(k).
If the Snearys could make it through 2006, maybe they could refinance and dig out.
Now, though, there was another problem.
They still owed nearly all of their loan. But their home was worth much less in a real estate market slowed by economic uncertainty and bloated by new construction. The couple, convinced they'd overpaid, couldn't refinance or sell.
Instead, they neared the two-year mark, when their interest rate would jump.
___
But the next time will be different, Tim and Angela say. They'll stay within their means. They'll borrow more intelligently.
The combined GROSS income was $55,000. Presume a 25% tax bracket (state & federal combined), their take home income would be roughly $41,250 or almost $3440 per month. They have 3 kids. A starting mortgage payment of $1624 per month means that almost 50% of their income is going to the mortgage. But then as the loan matured, the payments went up to $2100 which is 61% of their income.
They overpaid. They didn't shop for a mortgage. They went into closing not knowing their payments. They planned for payments under $1300 per month but got payments at closing over $1600 per month which they could not afford without overtime. The knew that and didn't walk away. They didn't plan ahead to budget for the upcoming rate increases. I'm not trying to pick on these folks, but their story illustrates the points that have been made several times in this thread.
All through the article it states how easy it is to get a loan. The family's sad story shows what happens when people don't take the time to do their own homework.
BillyP
Veteran Member
Bob, good story and so true but shouldn't Sebring Capital Partners share the blame? Sometimes I wonder if these mortgage companies are betting on the borrower going south. Then they have whatever interest paid and start all over again. That works out great if real estate
I still say they both have to share the blame.
I still say they both have to share the blame.
DUMBDOG
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You cannot protect people against their own stupidity.
Bob_Skurka
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Suppose you buy a new tractor. You expect the tractor to go up in value, but it does not. You get laid off, sick, or were barely hanging on financially when you took out the loan to buy the tractor. You fall behind on your payments and you end up owing more than the tractor is worth. Ultimately the tractor is repossessed.BillyP said:
Is the lending company that lent you the money to buy the tractor responsible for the fact that you didn't make your payments?
