| The Option ARM Loan: Turning the American Dream into a Nightmare
At first glance, an Option ARM loan can seem like a great opportunity for someone who is looking to purchase a home with the lowest monthly payments possible. An Option ARM mortgage starts out with low "teaser" interest rates that are only good for a month but are extremely appealing. An Option ARM loan also offers the borrower his choice of payment type: a minimum payment, an interest payment, or an amortizing payment. And the minimum payment can be seductively low, offering a borrower with limited cash flow the chance to buy a larger property than he expected to be able to afford. The problem is that if a borrower makes only the minimum payment on his Option ARM mortgage each month, he will quickly find that he is sliding into debt. As the teaser rate expires and the actual interest rate rises, the borrower's minimum payments will not make a dent in the actual loan principal nor the interest that is rapidly accruing.
Mortgage crisis sends US house prices tumbling
THE mortgage crisis in America has deepened so much that family homes can now be bought for less than $US30,000 ($A36,670) the price of a new car. A four-bedroom house near the original Motown recording studio in Detroit recently sold for $US7000, less than most used cars. A boarded-up bungalow fetched $1352 and a three-bedroom house listed for $545,000 attracted just $136,000. Detroit, which made its fortune on the back of the car industry, now holds a more dubious distinction: the capital of home repossessions. The decline of its main industry has seen it suffer more than other areas from a crisis that is sweeping the US and has sent a big chill through the economy and global sharemarkets. Up to 1.5 million Americans could lose their homes in the next two years, while repossessions rose by 42 per cent last year.
Hidden costs in subprime borrowing
(04-01) 04:00 PDT Washington -- As financial regulators and Congress probe more deeply into the delinquencies and foreclosures roiling the subprime home loan market, one key contributing factor is receiving increased attention: the lack of mandatory escrow accounts. According to some industry estimates, a majority of subprime mortgages closed during the housing boom years carried no escrows for property taxes and hazard insurance. That is in stark contrast to the prime mortgage market for consumers with good credit, where mandatory escrow accounts are routine. "It's an upside-down world," said Mike Calhoun, president and chief operating officer of the Center for Responsible Lending, a consumer advocacy group based in Durham, N.C. "The people you'd think need an escrow the most aren't required to have them, and the people who need them the least are forced to use them." Escrow accounts are set up by lenders to guarantee the timely payment of property tax bills and insurance premiums.
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