Mortgage Problems

There was a dramatic increase of large home builders use of their own mortgage subsidiaries. In order to qualify buyers for homes at the inflated prices, the builders’ mortgage companies became increasingly reliant on the types of predatory and risky mortgage products that have come under so much recent scrutiny, such as adjustable rates and stated income, or piggy-back loans with high cost second mortgages. Homebuyers in new developments have been especially hard hit by the current housing crisis, and the worst is yet to come. New subdivisions are unique because all homebuyers who purchased their homes within a year or two of each other have mortgages at inflated prices and often with risky terms. Do you have an adjustable interest rate? In some areas, two-thirds of the mortgages made by big builders have adjustable interest rates. Some homebuyers’ interest rates and payments have already skyrocketed, while others will change in the next few years. These homebuyers will not be able to refinance before their payment goes up because they owe more than their house is worth. Joni Lynn moved from Texas to Arizona. Her realtor found her a KB Home. Lynn said she told the realtor that she just wanted a plain old conventional mortgage with a fixed rate, that she didn’t want any “bells and whistles” with it. Countrywide KB home loans gave her two mortgages. Although she is retired and her income is just from social security and a pension, the first mortgage is an interest only ARM which starts at 6.5% and can go as high as 11.5%. Lynn now owes about $204,000 between the first and second mortgages. The Maricopa County tax assessor has lowered the value of Joni’s house from $210,000 to $148,800 just since last year. Do you have a second mortgage with a high interest rate? In parts of the country, half of the mortgages made by big builders also had a second mortgage. This leads to problems because homebuyers then have no equity and also because the majority of second mortgages made by these builders carried high interest rates. Even many homebuyers with prime first mortgages received second mortgages with subprime rates. The builder’s mortgage company assured buyers they could refinance the two mortgages into one lower rate loan at a later date. However, now that the market has crashed and housing values have declined, refinancing is not an option for many homeowners. Is your community suffering from foreclosures? As the number of foreclosures and vacant houses in a community goes up, home values go down even further. Is your subdivision a ticking time bomb? All of these issues could be serious by themselves, but together they can make a dangerous combination. How much worse will things get before they get better? Read LIUNA's report: The Ticking Time Bomb: Adjustable Rate Mortgages and Depreciating Home Values in New Subdivisions. For more information, contact us. If you live in California, please call the Alliance for Homebuyer Justice’s Riverside office toll free at 888-353-4115.