SubPrime Loans, ARMs and Blindfolds


foreclosure_home_for_sale2

Ever hear of a website named Zillow.com?  It’s a real estate site that features data on address in every community of every city in the U.S.  Type in an address and if it’s legitimate, in most cases, Zillow provides satellite views, street views, tells you what a specific property is worth, what it once was worth, the percentage of appreciation/depreciation; features of the property: number of bedrooms, square footage, bathrooms, etc.  You can find out what an owner paid for a home, when it was purchased, what its taxes are, even what the house payment is.  You can look up anyone.  Zillow shows prices for comparable properties and what has sold recently.

If you belong, Zillow sends you emails every so often, to let you know of changes in your home value, neighborhood sales trends, zip code home values and so on.  I got an email from them this week.  It told me that my house had appreciated 1.4% last month but was down 5% from this time last year.  When I looked at houses on the market in my area, I noticed something I never saw before…4 out of 5 were foreclosures.

Despite all I’ve seen about the mortgage crisis, this surprised me.  I live in the burbs. I assumed the Sub Prime loans affected primarily urban buyers.  When I look at urban properties, I see there are a glut of them in foreclosure. And when I check  upscale areas, I’m seeing ever more appearing there as well.

First, let me warn you–I’m no real estate expert.   I do know enough to avoid adjustable rate mortgages, since I got burned by one when we bought our first home.  Luckily, I was transferred, the market was still good and we realized appreciation when we sold.   But I never forgot how worried I was every time that adjustable mortgage would reset.  It was an uncomfortable feeling. Since my rate was tied to the prime interest rate,  I really didn’t know what my future payment would be.  I was happy and lucky  to get out when I did and have had FIXED mortgages ever since.

Most of the problematic Sub Prime loans required little or no down payments. Credit checks were extremely lax and initially low rates reset to a ridiculous level within several years.  When buyers started defaulting in record numbers, banks simply foreclosed.  Our current condition reflects most of the damage caused by the Sub Prime Crisis.  As Sub Prime loans lost their luster, the ARM resurfaced with some new features that made them even more appealing to beviction2uyers anxious to enter a still prospering housing market. By and large, property has always been a safe bet.  Housing appreciated over time.  New ARMs featured the same low attractive “teaser” rates but  also deferred early interest, making owners comfortable with a  payment that would exclude  all or part of the deferred interest until it reset over time to higher rates, not only significantly boosting monthly payments but also the total cost of buying the home.  And these popular loans, purchased years AFTER the Sub Prime trend has proven to be a trap, are just BEGINNING to reset.  Their full impact will hit (as I recall) in the next 5 years.

I’m the wrong guy to be talking about this, but as thick as I am on anything that involves math, I understand enough to know that we’re far from out of the woods on this one.  Blindfolded buyers bought from greedy bankers, who bundled the loans for resale, which led to a cascade of bad debt.  When it became apparent that one jig was up–that the banks didn’t have reserves sufficient to cover their liabilities–they tried to move other products to shore up losses…and we now face a second wave to brace for as those  aging ARMs reset.

To loosen credit,  our leaders doled out welfare to the banks, who then refused to account for it.  They also refused to put it back into the market in the form of new loans, choosing instead to give execs bonuses and to pay dividends to shareholders.

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This, as the home buyers victimized by the banking industry wound up with no place to live and bad credit.

We’ve been hearing how serious this is for the past year, but not from the Bush Administration, which continued to guild the lilly well into August, right up until the s**t hit the fan.  It’s been a nightmare ever since.  And I fear that the worst may still be ahead.

Check out Zillow to see what’s happening around you.  You maybe surprised.  I was.

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2 Responses to SubPrime Loans, ARMs and Blindfolds

  1. Pingback: Change and Personal Commitment: What’s Your Pledge? « New World Odor

  2. Pingback: Evicted? Don’t Move…Squat « New World Odor

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