Ah, the American dream. Purchase as much house as you possibly can and foreclose 2 years later. Wait, what?
Subprime lenders might be getting a clue, because they've effectively dumped the 2/28 loan. What shocked me is that they claim it is the "most popular loan". Really? When I bought my house 2 years ago, the very idea that I would sign a 30 year loan contract and have no clue what the interest rate could be in a couple of years was ridiculous. Would you sign your mortgage with the interest rate blank and let the lender fill it in later whenever they wanted? No? So why would you let them do it a couple years later? Unless you have a very specific set of circumstances, this is mind-bogglingly stupid.
What's a consumer looking to refinance to do, they ask?
Mortgage brokers and loan officers say borrowers who need to refinance their subprime mortgages still have options -- just not as many. Some lenders might still offer 2/28 and 3/27 ARMs, although the rates might be high -- possibly into the double digits.Um, how about a 30 year fixed. How about a 15 year fixed! Why, why, why, would you sign a contract without any idea what the interest rate is going to be? Here's an idea, sell your house. If you can't pay the mortgage without ridiculous terms, you obviously can't afford to live there.
One banker says its "old school again". How is a 5/25 or a 40 fixed "old school"? My grandparents would have laughed all the way out the front door if faced with a contract like that (I can't say my parents because, well, sorry mom and dad but your generation doesn't have the best record of making good financial decisions).
"Some families are going to have to make ugly decisions," a banker says, by cutting back on spending or, in the worst case, losing the home in foreclosure.I disagree with this "poor me, my mortgage is going up and I'm going to lose my house!" because they did it to themselves.
At the end of March, almost 16 percent of subprime ARMs were at least 30 days past due, according to the Mortgage Bankers Association. That's high, and the default rate is bound to get even worse as subprime ARMs reset over the next couple of years.No kidding. Could it just be that ARMs altogether are a stupid product? Maybe? Right up there with home equity loans, in my opinion.
Fortunately, Washington Mutual (WaMu) appears to have been hit with the "well, duh" stick:
WaMu announced other changes in the way it underwrites subprime mortgages. All subprime borrowers will have to document their income instead of merely stating it without providing proof, and taxes and insurance must be included in their monthly payments.Not to worry though, if you have a great credit score, the bank will still give you a loan for whatever you want without any consideration of you actually paying it back, and you can do your small part to drive the housing crash. Really, is xeroxing a copy of your W2 so hard?