A tough adjustment (adjustable mortgage rates trouble).

[survivor999]

If you can, listen to this 1 hr NPR segment on adjustable rate mortgages... Very instructive, especially to hear why Greenspan encouraged people to go for adjustable rate mortgages a couple of years ago...

Edit: The URL has links to audio files you can listen to.


-------------------------
By host Tom Ashbrook:

It seemed like a good idea at the time. Just a few years back, when housing prices were soaring and interest rates were at historic lows, millions of Americans grabbed adjustable rate mortgages with super bargain basement rates. For many, it was the only way to jump on the American housing train.

Now that train is slowing, big-time. Home sales and prices are slumping in many markets. Interest rates are up and so are foreclosures, as the first big wave of adjustable rate mortgage holders face the music: sharply higher monthly payments or a scramble to refinance and push out the pain as housing prices stall.

It may be you, it may be your kids, it may be your home's value that takes the hit.

Hear about the American housing market, and the adjustable mortgage rate pinch.

Guests
Spacer
· Cybele Weisser, reporter for Money magazine
· Chip Case, Professor of Economics, Wellesley College
· Susan Wachter, Professor of Financial Management and Real Estate
· Christopher Hudak, Housing Counseling Coordinator, Boulder County Housing Authority
· June Fletcher, Wall Street Journal reporter and columnist, author of the book "House Poor"

http://www.onpointradio.org/shows/2006/07/20060731_b_main.asp

[Ezlivin]

1. People used to buy houses to live in, not for speculation

As a homeowner (read: mortgage holder) I've seen lots of people buying houses only to immediately sell them for a profit. This speculation drives up home prices (not necessarily home values).

My house has doubled in assessed value not because of anything we've done. Our property taxes have tripled since we've been in the D/FW area.

It's insane.

[OrangeCountyDemocrat]

2. Who Will Lose Their Homes?

[Warpy]

3. I can tell when local folks got sucked into ARMs and didn't

renegotiate a fixed rate when they had the chance: the foreclosure notices start to appear. This spring, there was a rash of them in my area. Most of the people on my end of this block own their houses outright, so I know I'm keeping my neighbors for the near future, but the rest of the 'hood seems to be quite vulnerable. The houses are all tiny, post WWII houses and most are fixer uppers that survived a couple of decades as rental units. This area was very attractive to the starter house crowd, and that means marginal borrowers who had to get ARMs at rock bottom rates.

I'm expecting to see a repeat for the next two springs, at least, longer if the Fed keeps raising interest rates to keep ahead of the decline in the value of the dollar internationally.

[adriennui]

4. some people didn't think this out

ARMs were a gamble and resulted in the over valuation of the housing market. people bought houses they really couldn't afford under normal circumstances, others were greedy and were intoxicated by the promise of a fast buck or the ability to live in a 5000 sq. ft. house.

they gambled and they'll end up on the losing end. the housing market will readjust to more realistic levels.

[acmejack]

5. ARMs have always frightened me.

I hate things where the rules can change in middle of the game. I like to be assured of a few constants.

[Phoebe Loosinhouse]

6. When the housing market plummets into the toilet as I believe it will

all eyes should turn to Alan Greenspan. It was idiocy beyond compare when Greenspan talked up adjustables when rates were as low as they ever had been or would ever be. WHY? Why would a responsible fiscal person do that? Because he cared only about the statistics during his tenure. Do you think he advised his own family to take an adjustable? It was INCREDIBLY irresponsible of him to do that, BUT, he was propping up the moribund US economy (No real job growth, stagnant wages) with the only sector breathing and with a pulse - HOUSING. Of course he knew what he was doing. We have lived through an exactly comparable situation in the eighties with the real estate run-up and the savings and loans fiasco.

Alan Greenspan is a charlatan!

[survivor999]

7. At the end of that NPR segment

one of the guests says that Greenspan was only worried about the banks. Fixed rates put the risk on the banks (especially, when higher rates are on the horizon). Adjustable rate mortgages put the risk on the consumer, or at least on the consumer who's not very cautious or smart. And voila'.

[Phoebe Loosinhouse]

8. That is gobbledygook to me. A defaulted mortgage is a defaulted

mortgage, whether the initial rate was fixed or an ARM. I don't see how the banks' risk is any lower and is probably MUCH higher by pushing an ARM. Is there any other info that might shed light on that?