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KEY CULPRIT IN THE CURRENT MORTGAGE MARKET CONUNDRUM? SIMPLE HUMAN NATURE!

HUMAN NATURE - ONE OF THE KEY FACTORS OF TODAY'S CURRENT MORTGAGE MARKET DIFFICULTIES? 

According to a story in the November 18, 2007 Chicago Tribune, by reporter Marilyn Kennedy Melia,  just a few short months ago, many mortgage consultants were suggesting interest-only adjustable rate loans, and very low introductory interest rates.  Starting rates for these "Interest-Only Option ARM's" were low, and so were initial mortgage payments, since these loans were interest only.

Many buyers were attracted to these low-payment loan programs.  Using then-applicable qualification formulas, buyers could then afford a more expensive house, while keeping their house payments very low.   Some short-sighted, or perhaps unethical, loan originators, offered low-cost refinancing, should rates rise to an uncomfortable level, while a few of the more concerned loan professionals suggested adding to the additional principal to the low monthly payments, so, at minimum, equity could build at a higher level should rates adjust upward.  At that point, when the rates adjust, the higher rates would be based on a lower amount of principal, as the extra equity payments would reduce the principal then due on their mortgage loan.

In reality, however, most of these Option ARM borrowers paid just the minimum, low payment.  Human nature, right?  As these rates are now adjusting upward, some by a considerable amount, many failed to qualify for refinancing, as new, more stringent loan underwriting rules have since taken hold.  Many of these homeowners are now in default!

Economist Tomasz Piskorski, of Columbia University, is disappointed by the difficult situation Option ARM borrowers now face, but not surprised.  He feels that if such borrowers were required to receive special counseling before taking such mortgages, as is now required in many states and is being enacted in Illinois next year, they could learn to use these custom interest-only programs to their advantage. 

Borrowers are not always completely rational, however, when signing for a new home loan.

DEAN'S TEAM LEADER,

DEAN MOSS

Posted: Sunday, November 18, 2007 8:55 PM by Dean's Team

Comments

BlogChicagoHomes.com said:

Good Morning, Everyone! Human Nature may be one of the primary factors creating current difficulties

# November 18, 2007 9:02 PM
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