Mark Winston Griffith

2007: Predatory Loans Come home to Roost

The tragically "hot" story for 2007, one that will feature more shattered lives than a FEMA trailer park, will be the detonation of the adjustable rate mortgage (ARM) market time bomb.

Last week, Bernice Ross, writing for Inman News, a real estate trade journal, salivated -- in a measured but obvious way-- over the fact that "approximately 9 million adjustable-rate mortgages (ARMS) will readjust...[M}any owners will be caught in the squeeze of a having higher payments and no way to pay for them."

Ross reports what many have been citing for weeks now: "In 2001, only 2 percent of the ARMs were interest-only, while today more than 35 percent are of this type of loan..."

What does this mean? Monthly mortgage payments for people, many of whom spent their life savings on the original down payment, could double, even triple. It's widely expected that as a result, many of these people will be facing foreclosure.

For real estate agents who can "turn foreclosures listings in an income stream" or "represent investors who purchase foreclosure properties" this is great news. For homeowners who were lured into seemingly affordable, boy-it-sure-sounded-good-a-the-time, "exotic" mortgages over the last few years, this is akin to a massacre of homeownership.

The most troubling aspect of these loans is the shoddy or simply non-existent underwriting that was used by the mortgage company to make these loans in the first place. Many of the "no-doc" features of these mortgages don't even require the lender to determine the buyer's ability to pay. Now is that the devil's predatory lending playground or what?

The focus -- and challenge -- for advocates in 2007 and beyond is to shut down this kind of abusive lending in a way that won't deny working people asset-building opportunities.

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Posted at 9:36 AM, Dec 22, 2006 in
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