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Mortgage Surprise? What Surprise?The most used word in the world of mortgage financing during the past few weeks has been "surprise," as in, "oh my, cover your eyes and turn away from those poor wretched loans. The U.S. mortgage giant Freddie Mac said it would no longer buy those high-risk home mortgages that it deems to be the most vulnerable to foreclosure. The surprise move came amid a deteriorating market for subprime loans affected by slumping home prices and rising interest rates." Freddie Mac tightens home mortgage standards, The International Herald Tribune., Feb. 28, 2007.But the fact is that home prices are not slumping in many local markets and interest rates are plainly at the low end of historic norms. Such factors are simply not the root cause of today's mortgage instability. Instead, problems in the subprime mortgage market -- and a growing sense of problems in other parts of the mortgage universe -- are the result of dicey loan concepts that turned out to be exactly what any lucid person would expect: risky beyond reason. Who could have known such things? Anyone with common sense, including readers of this column. Let's begin with interest-only loans. These are mortgages where borrowers do nothing to reduce the principal for the first several years of the loan. Once the interest-only "start period" ends then the loan must be repaid at the fully indexed and fully amortizing rate. Given that most interest-only loans are adjustable, and given that fewer years remain after the end of the start period, it follows that such financing will inevitably require higher monthly payments. Homeowners needing to sell their home visit 888SOLDin9 to talk with our Jacksonville FL partner about their personal financial situation. Our Jacksonville FL partner, Jim Tallent buys, sells, renovates and rents homes and properties in Jacksonville FL, Duval County FL and surrounding areas. click here for article |