What a mess the mortgage industry is in right now. Something needs to be done and the guys with the nice coats and ties up in Washington can't fix this because they don't know what the root of the problem is. On top of that, they have no idea and the mortgage mess is filtering down tier after tier and how the old problems are causing new problems and more than likely these new problems will become old problems with new problems emerging that we don't even realize yet.
With interest rates increasing to an 8 month high (as of the middle of June (08)), it's only compounding the problems that already exist. For the millions of people who are still on adjustable rate mortgages left over from the subprime world (that practically no longer exists), their chances to get out of their current mortgage and into a fixed rate are getting slimmer and slimmer. Not only did the majority of these buyers get loans that were 100% financing, the majority of them don't currently have an escrow account and with their monthly payments increasing due to their rates adjusting, they don't have an extra $300 to $400 per month to set aside to pay those property taxes at the end of the year. They are scraping by every month doing their best to get their mortgage payment made before they are 30 days late where their chances for refinancing will be pushed another 12 months.
These people have no equity in their homes. They used whatever equity there was when they bought their homes to pay for their closing costs so they could get into their new homes with nothing out of pocket. That's fine as long as home values keep appreciating like they have for the past 10+ years, but the subprime world has come crashing down. Now that home values have dropped and people owe as much if not more on their homes than what they are worth, it's harder and harder to refinance. Not only does refinancing cost money (sometimes 3% to 4% of your loan amount), if you don't have the money to pay it at closing or the equity in the property to cover it, you won't be able to refinance. So, if you did 100% financing on an adjustable rate mortgage, more than likely you won't be able to refinance out of it unless you bring a substantial amount of money to closing.
In addition to that, Fannie Mae and Freddie Mac have made it harder to qualify for a mortgage. Not only have they put rate adjustments on their rates for specific credit scores, they have "tweaked" the automated approval systems to make it harder to qualify. In addition to charging higher rates for everyone without a 720 credit score, they have increased the required equity in a property for both a purchase and a refinance. Now, you will need at least a 5% down payment or at least 5% equity in your property, to do a conventional loan. Do you think the people who did 100% financing that are struggling to make their mortgage payments and pay their property taxes have enough equity in their home to refinance it to a conventional loan? Of course not.
With home values decreasing, interest rates increasing, and our Congress is too worried about helping the couples in CA who did cash-outs on their homes and took out tens of thousands (if not more) of dollars out of their "supposed equity that no longer exists". I think our government (local and/or federal) should be concentrating on helping the young couples that got "duped" by greedy loan officers when they bought their first homes. The people in CA who have made tens or hundreds of thousands of dollars should be on their own.
That's just my opinion, but I needed to get it off my chest.
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