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Thursday, September 07, 2006


Exotic Mortgages Bite Some Buyers

Unfortunately, there are probably going to be more stories like this one from MSNBC:
"Joe" is a homeowner who did not want to give his full name for this story because he’s ashamed to admit that he soon won’t be able to afford his monthly mortgage payments.

In order to get the $800,000 house he bought early last year in California’s Silicon Valley, Joe got an “option ARM,” an adjustable-rate loan that lets him choose from a variety of payments every month. The smallest payment included no principal and less than 100 percent of the interest due. The unpaid interest was tacked onto the principal, creating “negative amortization.”

This let Joe trade lower payments now for higher payments later. He initially thought his salary would rise along with his home’s value — he was a marketing executive for a small software firm he was confident would be successful. But when a lost deal closed the company and “For Sale” signs popped up — and stayed up — in his neighborhood, a now-unemployed Joe is wondering how he will afford those higher payments when his rates adjust.

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