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Woah, woah, Daddy's wrong, Mommy's right.
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Feb 25, 2006
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Depends, the resets are all over the place, some have floors, some just reset at Index + spread. If the spread is higher than the previous spread, or the index has gone up since the initial loan was made, the rate and payment will go up. Some also start amortizing which will undoubtedly increase the monthly payment.

Now, I am of the opinion that if you can't afford an amortizing payment or if your margin between keeping a house and losing a house is so slim that you can't afford the reset, you can't afford the house and shouldn't have ever had it. If you are simply paying interest only, you are renting, not purchasing, a house. You will never own it paying interest only.

Dropping property values and no money down or low money down loans are the greater cause. Purchases were made with the expectation that values would continue to rise (or at the least not drop) and when the reset came, they would refi to another interest only or neg-am and continue paying IO. When values dropped, they couldn't refinance and in turn couldn't afford the reset/amortizing payment and ended up in foreclosure.

Everyone is culpable, banks, mortgage brokers, and borrowers. But at the end of the day, borrowers borrowed the money and knew whether or not they could afford a mortgage. No one forced their pen to paper.

Out of curiosity I looked at my reset tonight. My loan is a 5 year interest only at 6%, though I make an amortized payment. The reset is 2.5+the One year LIBOR. If it were to reset today, my rate would actually drop almost .25% (1 year LIBOR is 3.2525). I wouldn't have the flexibility to make IO payments any longer as the loan does require amortized payments after reset.
 

Rx. Junior
Joined
Dec 31, 2007
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If you can't pay your mortgage, its your own damn fault. Most of these people didn't even lose their jobs, they're just to stupid to buy a house they can afford in the first place. The banks should be able to directly doc your pay like alimony.

Good idea about the alimony. Maybe these people will learn a lesson. Karma will bite these people in the long run anyway. :bigfinger
 

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