It seems that the people that purchased their homes with Adjustable Rate Mortgages got into big trouble when their rates adjusted at a higher rate. Did they not see this coming since they did opt for a Adjustable Rate Mortgages vs a Fixed Rate Mortgage.
Also do people with Fixed Rate Mortgages having the same problem as Adjustable Rate Mortgages home owners? I would assume not, usless they lost their job.
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Tags: Adjustable, Adjustable Rate Mortgages, Big Trouble, Blame, Fixed Mortgage, Fixed Rate Mortgage, Fixed Rate Mortgages, Job, Mess, Mortgage, Mortgages, Problem Mortgages, Rate, Rate People
7 Responses to “Are Adjustable Rate Mortgages To Blame For The Mortgage Mess?”
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Filled Under: Mortgage Loan Modification
January 8th, 2010 at 2:21 am
Some, I assume, were just plain stupid. Some signed up for the 2/28 mortgages figuring they would flip the house before the rates went up. They figured wrong. Some were not told what they were getting into. Mortgage brokers were the main culprets there. They–the mortgage borkers–were mainly out to rack up the commission. Many mortgage companies did not have any concern for whom they were selling mortgage to, because they were going to resell them to Wall Street bankers who would package them into securities, get a AAA rating from S&P and Ambac and then peddle them to some insurance company, bank, or hedge fund. No one really cared whether the persons taking out the mortgage could pay it or not. Didn’t enter into the CEO bonus, but writing the mortgage did.
As for fixed rate mortgages, I think there might be a lot of people sitting in houses that were purchased for $1,300,000 that are now worth maybe on a good day only $1,000,000 thinking they would be better off letting the bank have it.
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January 8th, 2010 at 2:40 am
No, irresponsible borrowers are to blame. If they didn’t understand the risks, shame on them for not learning first. My first lender was leaning on me to get an interest only loan. After I learned what that meant, not only did I go fixed rate, I changed lenders.
Borrowers with fixed rates ought to be in better shape if they budgeted for housing correctly.
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January 8th, 2010 at 2:57 am
The disclosures are there to protect the consumer. it’s the greed of the consumer that ends up burning them in the end. Then they blame everyone but themselves when they lose their house.
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January 8th, 2010 at 3:54 am
Many bought a home with an ARM thinking they could refinance before it adjusted. This combined with the packaging of these risky mortgages as securities for sale in the secondary market made it easy to get financing, even for people that would never have qualified before.
This, and speculation, caused housing prices to rise to a level the market couldn’t support. If corrected itself and prices began to fall. The people in ARMs couldn’t refinance because their homes may be worth less than they owe, and cannot afford the higher payments and go into foreclosure.
These foreclosures, along with a drop in speculative and investment buying, caused prices to drop further making the situation worse. Eventually, prices will be low enough for more people to afford and will eventually rise again. The market always corrects itself.
Despite what that media says, there are many area of the country that have been hit hard by this. In fact, although sales were down, home prices actually rose 2% in 2007.
There’s plenty of blame to go around..
-The lenders who made the risky loans
-The borrowers who took these loans based on current assumptions about the markets.
-People on both sides who took advantage of the situation, or even worse, committed fraud (driving home prices even higher)
-The investors/financial institutions who bought the securities on the secondary market without truly understanding the risks involved
The problems have affected people who due to their circumstances may need to sell their home, but can’t due to bad market conditions.
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January 8th, 2010 at 4:48 am
They are part of the mess but not all of it. The more general problem is people buying houses they could never afford. Adjustable rate mortgages were one way to do that. Loans with zero down were another way. Fixed rate mortgages with payments higher than the buyer can afford are another.
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January 8th, 2010 at 4:58 am
Nope!
They are one of the vehicles driving the mess but the people who signed for (as in borrower) the vehicle are to blame.
Here is an interesting article:http://money.cnn.com/2008/02/20/real_est…
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January 8th, 2010 at 5:55 am
That is one factor. Some others:
- dishonest borrowers who lied on their applications
- lenders reduced their standards for lending money (and loaned it to people who shoudn’t have qualified)
- dishonest mortgage companies who mislead un-savvy borrowers.
- reduced value of houses, causing people to be unable to refinance.
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