Affluent Black County Mired In Mortgage Mess

[Boodleboy322]

Originally Posted by DrPhil

Technically, no.

They would have to get a different type of mortgage loan (like the dangerous ARMs) and some (more considerate) lenders would either advise them to get a cheaper house or wait until their debt has lessened.

Credit Score is a huge factor in the origination process and ARMs have stricter underwriting guidelines than a standard 30yr Fixed Rate Mortgage. The days of going into these "Dangerous ARMs" got shut down during the Subprime meltdown. Specifically, Hybrid Option ARMs. Indeed they were dangerous when sold to the wrong client. But they haven't been actively trading in the Market for several years now.

[DrPhil]

Originally Posted by Boodleboy322

The days of going into these "Dangerous ARMs" got shut down during the Subprime meltdown. Specifically, Hybrid Option ARMs...But they haven't been actively trading in the Market for several years now.

What do you mean? I'm not the most familiar with Hybrid Option ARMs, but the issue with ARMs hasn't gone away. In 2011, there are still homebuyers who are opting to do a 1, 2, 5, or 7 year ARM despite being warned by mortgage lenders and anyone else who knows the potential dangers.

[AGDee]

There are ARMs that are not bad. I got an ARM 10 years ago. It was fixed for 2 years and after that, it is adjusted annually. It is a set percentage above LIBOR. It cannot change more than 2% at one time (up or down) and it cannot go higher than 5% above the original rate. It is currently at 4% and has gone down every single year since it has been adjusting. There are no "gotchas" of a balloon payment at the end of a certain time period or anything. Even if mortgage rates skyrocketed now, they would have to continue to skyrocket for 5 years before I would hit the max at this point. Yes, there is a danger that it could go up to 13% max, but it really isn't likely that we'll see the LIBOR go up that high over the next 10 years. It is a pretty safe ARM. I'd have been paying 8% for the last 10 years had I gotten a traditional mortgage and I'd be unable to re-fi at this point because the house could never appraise for high enough in this economy. Mine is a very low risk ARM and has served me well.

[Boodleboy322]

People are still originating the vanilla Agency ARMs and Jumbo ARMs but the underwriting guidelines are stricter. Yes there is still risk that people will default just like any committment you make when you borrow money. There is always a chance that someone won't make the payment (even for folks with higher credit scores) for whatever reason. The Credit Score and low DTIs are a gauge that tells the lender if the borrower is most likely to make their payments and prepay the mortgage.

The days of not qualifying on a 30yr Mortgage and getting tossed into an "ARM" are gone. If anyone in the banking world is still originating Hybrid Option ARMs (definition: a mortgage that would allow you to get a 1.00% interest rate for the first three months and then cast into options of either going Fully Am, Interest Only, Fixed, etc that was typically attached to the MTA or COFI index) then the risk is being retained on a balance sheet at the bank and is not going into the securities market. Those types of securities have no liquidity. Yes, prior to the Subprime meltdown if a borrower couldn't get underwritten on a 30yr Conventional they had an option to get into a Hybrid Option ARM which had looser underwriting guidelines to get into a mortgage.

[Elephant Walk]

Originally Posted by BluPhire

If it turn vitriolic, we know who to blame.

That (person) has already been called out.

Thank god I called her out, too.

[DrPhil]

Originally Posted by AGDee

There are ARMs that are not bad. I got an ARM 10 years ago. It was fixed for 2 years and after that, it is adjusted annually. It is a set percentage above LIBOR. It cannot change more than 2% at one time (up or down) and it cannot go higher than 5% above the original rate. It is currently at 4% and has gone down every single year since it has been adjusting. There are no "gotchas" of a balloon payment at the end of a certain time period or anything. Even if mortgage rates skyrocketed now, they would have to continue to skyrocket for 5 years before I would hit the max at this point. Yes, there is a danger that it could go up to 13% max, but it really isn't likely that we'll see the LIBOR go up that high over the next 10 years. It is a pretty safe ARM. I'd have been paying 8% for the last 10 years had I gotten a traditional mortgage and I'd be unable to re-fi at this point because the house could never appraise for high enough in this economy. Mine is a very low risk ARM and has served me well.

Yes, some people have benefited from ARMs, particularly people who (1) don't plan on living in the home after the time that the rate will be adjusted; and (2) people who have considered what they will do when the rate increases (perhaps not 13% but they still need to consider how they will pay if the rate is higher than expected).

Since life is difficult to predict, many people (homebuyers and housing professionals) are recommending against ARMs if the only incentive is the introductory rate. That and the economic crisis fueled the housing crunch once people's dream house's introductory rate increased to the prevailing rate and people couldn't pay (partly because the average American doesn't save much money and doesn't build wealth).

Originally Posted by Boodleboy322

People are still originating the vanilla Agency ARMs and Jumbo ARMs but the underwriting guidelines are stricter. Yes there is still risk that people will default just like any committment you make when you borrow money. There is always a chance that someone won't make the payment (even for folks with higher credit scores) for whatever reason. The Credit Score and low DTIs are a gauge that tells the lender if the borrower is most likely to make their payments and prepay the mortgage.

The days of not qualifying on a 30yr Mortgage and getting tossed into an "ARM" are gone. If anyone in the banking world is still originating Hybrid Option ARMs (definition: a mortgage that would allow you to get a 1.00% interest rate for the first three months and then cast into options of either going Fully Am, Interest Only, Fixed, etc that was typically attached to the MTA or COFI index) then the risk is being retained on a balance sheet at the bank and is not going into the securities market. Those types of securities have no liquidity. Yes, prior to the Subprime meltdown if a borrower couldn't get underwritten on a 30yr Conventional they had an option to get into a Hybrid Option ARM which had looser underwriting guidelines to get into a mortgage.

Thanks for explaining. As for the bolded, some mortgage lenders are advising people against ARMs whereas other mortgage lenders present ARMs as a wonderful, fool-proof option (which is why research is important). Either way, people generally may not be tossed into an ARM but, especially when using a mortgage lender that doesn't advise against an ARM, people are choosing the ARM either immediately or after not qualifying for the 15 or 30 year fixed rate. What eventually happens to a lot of people after that introductory rate moves to the prevailing rate has been discussed in this thread.

If I had a dollar for every time I read "don't let mortgage rates/bad credit/whatever keep you from your dream home" on a mortgage lender's website in 2011. People need to buffer their excitement with research. There are home buyer and mortgage tools that help people consider the potential pros and cons of it all.

[AOII Angel]

ARMs are a risk. Not all are created equally obviously. Subprime loans got us into this mess, and luckily those have been axed. I have a 5 year arm on my B'more house. We didn't think we'd be there 5 years...we were right. It resets next year, and hopefully we will be selling it by then. If we don't, it won't be a tragedy. Even if the rates don't stay this low, we will be able to afford the difference. I will hopefully be closing on a condo in Phoenix next Monday with a 30 year fixed. I agree with Dr. Phil. I'm not messing with a 5 year arm this time. We only have to put down 5% so the equity we have in the property is not enough to refinance later down the line.

[Boodleboy322]

Originally Posted by DrPhil

Thanks for explaining. As for the bolded, some mortgage lenders are advising people against ARMs whereas other mortgage lenders present ARMs as a wonderful, fool-proof option (which is why research is important). Either way, people generally may not be tossed into an ARM but, especially when using a mortgage lender that doesn't advise against an ARM, people are choosing the ARM either immediately or after not qualifying for the 15 or 30 year fixed rate. What eventually happens to a lot of people after that introductory rate moves to the prevailing rate has been discussed in this thread.

Which lender is underwriting ARMs for customers that do not qualify on a fixed rate mortgage? That sounds like a red flag.

[DrPhil]

Originally Posted by Boodleboy322

Which lender is underwriting ARMs for customers that do not qualify on a fixed rate mortgage? That sounds like a red flag.

To clarify, for customers who do not qualify for a particular size of mortgage loan.

To answer your question, mortgage lenders who know that lower introductory rates mean lower introductory payments. Therefore, homebuyers can qualify for a larger loan to fit the dream house that people are told not to let mortgage rates/bad credit/whatever keep them from.

[AGDee]

I should also note, with mortgage rates what they are now, it's silly to get an ARM because it can go nowhere but up. Unless the LIBOR was 0, mine is currently as low as it can possibly go. When the rate was 8.75% (when I bought it), it was a good risk. I'm trying to pay down a lot of extra principle while rates are this low because then if they do go back up again, I won't be paying interest on as much principle.

[DrPhil]

Originally Posted by AGDee

I should also note, with mortgage rates what they are now, it's silly to get an ARM because it can go nowhere but up. Unless the LIBOR was 0, mine is currently as low as it can possibly go. When the rate was 8.75% (when I bought it), it was a good risk. I'm trying to pay down a lot of extra principle while rates are this low because then if they do go back up again, I won't be paying interest on as much principle.

I agree.

Yet, people are still enticed by the (even slightly) lower rate of particular ARMs. This topic has come up more and more and I've been reading more on the subprime mortgage crisis. It's sad. I think a lot of people are still in favor of ARMs at face value and regardless of the details. This has a substantial impact on the "middle class" and disproportionately impacts homebuyers who are racial and ethnic minorities.

Interesting article:
http://www.businessinsider.com/don-b...-market-2011-6

Originally Posted by Munchkin03

I have a lot more to say about this, which will have to wait--mainly about the pressure that affluent blacks receive from family and friends to buy a house right away after finishing college or graduate school, by any means necessary. For so many people, homeownership is the American Dream fulfilled and this yearning may be even stronger for blacks and Hispanics. The hysteria of the mid-aughts increased that since people were afraid of "being priced out."

Calling Munchkin03 to the dancefloor. LOL.

[PiKA2001]

What's this thread about now? Are we talking about peoPle in general loosei g their house or only black folk in PG county? I've got lots to say about both, well not black people specifically but DC housing prices... Ridiculous. I used to work at Andrews AFB so I'm familiar with the DC area and the fact that a shitty three bedroom townhome would cost half a million dollars. Add the fact that houses a few years ago were appreciating 10-20k a year and the fear of being priced out and you have trouble.

And if this post doesn't make sense it's cuz I've been boozing. Goota do something during layovers.

[DrPhil]

Originally Posted by PiKA2001

And if this post doesn't make sense it's cuz I've been boozing.

I thought something was wrong with the first three sentences. LOL. The rest made sense.

We have 4 topics going on here: the relatively more affluent Blacks in PG county; racial and ethnic minority homeownership in America; housing prices/cost of living; and the mortgage crisis.

Wait until you're sober. Be safe and have fun.

[PiKA2001]

Hey, I'm on vacation so I'm allowed. I also have to build up a tolerance to alcohol. I'm flying out west and touring Pinot Noir country this week!

[Boodleboy322]

Originally Posted by DrPhil

To clarify, for customers who do not qualify for a particular size of mortgage loan.

To answer your question, mortgage lenders who know that lower introductory rates mean lower introductory payments. Therefore, homebuyers can qualify for a larger loan to fit the dream house that people are told not to let mortgage rates/bad credit/whatever keep them from.

That still doesn't provide a specific name. I'm asking for specific names of those lenders (i.e. Wells Fargo, Citi, Bank of America, XYZ Credit Union, etc).