Thursday, August 16, 2007


Lenders are tightening their standards

Apparently, you're going to need a good credit rating and 10% down to get a home loan. Now that's a shocker, isn't it? Sounds just like 1961 (6%), 1968 (6.5%) and 1988 (10%) the last years we took out a mortgage--although in the 1960s banks wouldn't figure the wife's income in the mix. WSJ had another story today in its series about the subprime market problems. Like the Tiger op ed piece I put into poetry a few days ago, this story uses an Hispanic family. There were a few details in the piece that I'll put at the beginning instead of the end:
    When the Montes bought their house
    they had little savings (no amount was given)
    not-so-great credit (no information on score)
    were eating out as a family twice a week
    paying $70 a month for piano lessons for one daughter
    planning college for the other
    taking vacations in Lake Tahoe
    had 2 car loans (make and model not given)
    When they got the home loan
    they didn't read the small print
    there is a prepayment penalty--$12,000 before 3 years
    didn't realize their property taxes would jump $3,000 because of the new valuation based on their purchase price
    they got a 2/28 loan, which means it can reset after 2 years for as much as 30% more in the payment amount when it floats to fixed for 28 years
    their payment on the 2/28 was $3,200 a month, not adding in the increase in property taxes
    their mortgage, which was actually 2 loans, covered only the interest, which means they were not building equity
I'm guessing that a person with the discipline to have a good credit rating and a savings account would have started putting money back immediately by eliminating the restaurant meals and vacations and piano lessons, knowing they had only two years before the crunch would come. But they didn't. They counted on refinancing the house, fantasizing that home values would continue to go up. They didn't, and the house is now worth less than they paid, plus they have no equity built up. They hope to hang on to the house by working some additional part time jobs and making the cuts they should have done two years ago.

No comments: