It isn't just the subprime as you say, which is what makes this so worrisome. 30%+ of mortgages are of this "creative" type where no principal is paid or there is some other trick to make closing the loan as painless as possible, damn the consequences later. The cash out and refinance boom is to blame for this as well as unseasoned investors jumping in and thinking they could flip a house for a neat profit. Most of these people got into the market too late to do that and now they are faced with managing this mortage that was never intended to be held long term. It was supposed to be a paperwork trick, not a rational cozy homeowner loan. The national association of realtors tried to paint a rosy picture all 2006 but even they have had to admit that the numbers are growing grim. Sure the prices haven't fallen as much as expected but that's exactly because people are refusing to drop their price and eat a loss against a loan that has ballooned rather than decreased. You can see it in the high inventory numbers as well as the drop in existing home sales. Even medium risk homeowners can end up defaulting with these funky mortgages in a cool market.

BACKGROUND:
I have been in Chapter 13 bankruptcy for 4 years -- so I have one more year left. 2 years ago an auto accident permanently retired me from teaching so I get $1000 per month for the rest of my life from the state plus coverage in its health plan. I had both group and private disability income insurance from the major insurance company in that type of coverage and my New York attorney who specializes in suing that company is hopeful that within 30 days they will finally pay me the $60k in arrears they owe me, plus the $2000/month the policy calls for until my age 65 (I am 52 now). In August I will recieve $21,000 that the State of California owes me (long story). My adjustable rate mortage balance is $172,000 and my house is appraised by Bexar County (San Antonio, Texas) at $302,000. The current rate is 7% and for the first 3 years (the loan is only 4 years old)the rate was 6%. I am $12,000 behind in mortgage payments and $12,000 behind in real estate payments, and could pay-off my bankruptcy plan with $8,255. A local sub-prime lender says they can pay off all three of those debts and re-finance my mortgage at a 9.75% rate. I received a letter advising me that the my mortgage would be foreclosed within 30 days (but I later found out that the company hasn't formally recorded that intent, nor turned the file over to an attorney yet.
I have recently returned to work by starting my own specialized steam cleaning business. I have been prospecting and building up a customer base for only 2 weeks, but my net operating revenue has been good ($1000/week) and I have secured accounts with some of the largest and well know local companies.
QUESTION:
Would you lend to me if you were that local sub-prime lender? If I am able to get that sub-prime loan -- can you think of any reason I shouldn't go for it? I sure could us eht cash flow and stress relief!

Thanks.

Remember the line from All The President's Men; "follow the money"???

In this case, follow the appraisers. Appraising is notoriously self-policing, and what's an extra $50K in imagined equity if nobody gets hurt? Guess what: people are about to get really hurt. Blame your local appraiser and blame the bank who rubberstamped the loan.

Mike Murphy - Thank you for sharing your personal story with us. While I am tempted to respond to your question and offer advice, it would be irresponsible for me to do so. However, if you call me at 212 680-5100 I would gladly give you the telephone numbers of non-profit homeownership counselors who could share their experience with you.

The exotic mortgages are somewhat to blame and qualifing people that did not qualify. But the boom brought out an unconsionable greed and the money lenders and homebuilders joined in an almost symbionic relationship.Grapping with both hands they scooped up whatever they could grab.

The thing that continues, to my amazement is the other reasons never mentioned... for not only the foreclosures, but familes that lost their homes just the same. I wish I could see a list of exactly what the reason was for each one.

We lost our home to foreclosure. We have no exotic mortgage. We had a 6% fixed rate on a house we could afford and we never were even late with a payment, until we were forced to abandon it. It was uninhabitable. Besides the mold, which some still do not beleve in...black stuff growing up the walls and even out of the carpet,the shower wall falling out and the windows leaking and the floors buckeling and the walls leaning,the light bulbs blowing, it smelled awful.

We are just one... of hundreds of thousands. We had substandard contruction. The builder was aware of major defective roofs in 37 of his 44 houses and sold them anyway.He saw no reason for disclosure and knew he would be protected.

In the state of Texas fraud, perjury, untheical behavior are allowed by builders. Home owners have no right to sue. We can not go to court because the lenders and the builders are protected by arbitration clauses.

We have over 12,000 complaints in to the Attorney General's office and his deputy director told me they had neither the staff nor the time to investigate builders. We have over 153,000 in foreclosure this year. And we have been everywhere in Texas begging for help and the builders and lenders are insulated... by the Bob Perry owned state.(Bob Perry of Perry Homes). He even bought his own state agency to regulate the homeowners.

Don't beleve me google my name, please.
Our story has made: Washington Monthly, Mother Jones Magazine did a seven page expose and our buider Stature/ Tremont, made People Magazine, under Contractors from Hell. Oh yes and they were thrown out of the Beter Business Bureau.

They are building right down the street, right down from the apartment they have caused us to have to live in.

Jordan Fogal
Jordan Fogal