Anybody on an "exotic" mortgage?
Oct. 19th, 2006 06:05 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
solarbirdDo you have an exotic (interest-only/negative amoritisation/"payment option"/etc) mortgage or a teaser-rate payment you rely on? Are you thinking you'll just refiance it later to save your ass when the rates go up, like the housing bulls have been saying?
If you're one of the people who fell for that, prepare for severe p0wnage. New Federal lending guidelines are shutting your plans down circa... now. The new guidelines came out a few weeks ago, and they're taking effect. Jessie at Mortgage News gives one example of how these escape hatches are being bolted shut.
So: any light-of-day you might have seen in this week's housing report - and there wasn't much, despite the "the housing slump has bottomed out" coverage seen in some of the press - is now gone, by which I mean snuffed, by which I mean, if you're in this situation, you are screwed. They are in ur house taking ur furniture.
Anyway, here's a direct link to the new Fed guidance paper so you can read the raw details - it's a PDF. The first link above doesn't even talk about some of the secondary instruments that are being affected here - for example, the simultaneious second-lein loan, where you borrow a "down payment" amount from one bank and a primary mortgage from a second bank. This sounds like something you'd have never imagined anyone doing, and yet it's actually disturbingly common, particularly in commercial lending. These are now expected to be handled more stringently too, even if they are in the form of traditional mortgages. Investor loans are subject as well - referring to purchasers of rental properties, and any remaining housing specultors who haven't realised that game is over yet.
So, if you had those kinds of plans in place and you didn't already bail yourself out, well - time to start making alternative plans. Good luck!
If you're one of the people who fell for that, prepare for severe p0wnage. New Federal lending guidelines are shutting your plans down circa... now. The new guidelines came out a few weeks ago, and they're taking effect. Jessie at Mortgage News gives one example of how these escape hatches are being bolted shut.
We will use this example: Qualifying at 2.00% start rate or fully indexed 7.625% based on $8,000 gross monthly income and $800 in revolving debt.So using the numbers in this example, if you financed, say, $300K at in some sort of exotic mortgage - one based on the interest-only payment, teaser-rate payment, flex-payment, or other non-equity building schema - then you will not qualify for refinancing that amount now. You'll be stuck with whatever loan you've got, and if you can't make the payments, well, we all know where that leads, particularly with the 2005 bankrupcty law changes. The link above talks a bit more about how that ends.
Mortgage Qualifying Differences:
at 2% Maximum Mortgage: $432,878
at 7.625% Maximum Mtg: $226,055
So: any light-of-day you might have seen in this week's housing report - and there wasn't much, despite the "the housing slump has bottomed out" coverage seen in some of the press - is now gone, by which I mean snuffed, by which I mean, if you're in this situation, you are screwed. They are in ur house taking ur furniture.
Anyway, here's a direct link to the new Fed guidance paper so you can read the raw details - it's a PDF. The first link above doesn't even talk about some of the secondary instruments that are being affected here - for example, the simultaneious second-lein loan, where you borrow a "down payment" amount from one bank and a primary mortgage from a second bank. This sounds like something you'd have never imagined anyone doing, and yet it's actually disturbingly common, particularly in commercial lending. These are now expected to be handled more stringently too, even if they are in the form of traditional mortgages. Investor loans are subject as well - referring to purchasers of rental properties, and any remaining housing specultors who haven't realised that game is over yet.
So, if you had those kinds of plans in place and you didn't already bail yourself out, well - time to start making alternative plans. Good luck!
