Real Estate Advertising Disclaimers
The Lethal Combination of Stated Income and Negative Amortization Loans
As the bubble in real estate continued to inflate, the popularity of negative amortization loans increased dramatically. Despite their embedded drawbacks, the loans provided an avenue for both lower income buyers to enter the market for the first time and for higher income buyers to qualify for more expensive homes that had previously been out reach. The loans were structured as “interest only” or less than interest only, keeping initial payments at a minimum to allow for favorable ratios when calculating income to monthly payments. The monthly shortage was added to the loan balance resulting in negative amortization of the loan. The biggest drawback of the loans was that, at some point in the future, the loan would “recast” from interest only to a significantly higher monthly payment which would then start paying down the principle on that loan. At the time that the loans were initiated these recasts were of minimal concern to prospective buyers/borrowers.
After all, these were mortgages many homeowners figured they would be out of, via a refi or a flip, long before things (like recasts) got really nasty. How else can anyone explain the phenomenon of using stated income on an application to get into a negative amortization mortgage? This mix was a dicey proposition even when things were going well and the psi of the real estate bubble was increasing daily.
In fact, the combination of stated income (aka liar’s loans) and “neg am” mortgages ultimately became the vehicle that allowed the last round of home buyers in to a real estate market that previously had left many of them behind. These home buyers were, for the most part, left behind because they couldn’t qualify to buy a home using traditional metrics. The stated income application basically allowed anyone to enhance their income to the point where they could qualify for a loan but only if that loan had the lowest monthly payment possible. Enter the negative amortization loan with its unsustainably low initial payment and, ”voila”, a class of homeowners that, in reality, never had a chance of keeping up with their mortgage payments had been created.
It was a big class, too. The clarion call for the last mad rush into a slam dunk real estate market had been sounded much like the one retirees heard when they cashed out their CD’s to buy internet stocks in February of 2000. In both cases, an asset class had been pushed exponentially higher as new buyers arrived every day to provide the “demand” side of the equation, allowing sellers the opportunity to cash out and leverage up with regularity. At a point in each bubble, the drawing in of the last round of buyers with none behind them meant that demand had nowhere to go but down. With that, the conditions for disaster had been set in motion and continue today.
Negative amortization loans, many of which have been outstanding for a few years now, are currently recasting with many more on the horizon. For homeowners, especially if they are having pre-recast difficulties in keeping up with their monthly mortgage obligations, the increase in payment size is going to be a tough pill to swallow. It is of utmost importance that borrowers know what their options are as a recast date approaches. To learn what you can do, call (949) 544 8224 today.
Legal Disclaimer
The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter. Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.
About the Author
Alex is a famous author who writes about Loan Modification. FeldMan Law Center is a free resource for millions of people to find information regarding several topics related to loan modifications and resources to information.
qualitystocks Daily Video 10/01/2007
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