October 16, 2007
In this episode:
Sub-Prime Meltdown
Addresses the local impact of the sub-prime mortgage meltdown and provides advice for homeowners threatened by foreclosure.
Foreclosure Advice
Agencies like Consumer Counseling Northwest in Kirkland are seeing an increase in the number of homeowners seeking help to prevent their financial lives from being destroyed by foreclosure, according to CCNW President Charles Helms.
Although Washington State has one of the lowest foreclosure rates in the country, it is growing. Foreclosures were up by nearly one-third this September compared to a year ago
Helms described the process that gets homeowners into trouble. “You need a place to live, you don’t have money saved for a down payment, and your income isn’t big enough to do a regular monthly house payment on a thirty-year fixed rate loan. So to get into a house, people use a little more exotic lending product, like an adjustable rate mortgage.”
The adjustable rate mortgage lets the buyer get into the house for a low month payment, but those payments can sharply increase when the adjustable resets a couple of years down the line.
“When your mortgage resets from 3.75 percent, to a market rate of 6.75 percent, you can’t afford the extra hundreds of dollars every month that’s it’s going to take to keep the home that you have gotten yourself into.”
“People are optimistic; they hope that in maybe two years their house will have appreciated in value so they can later refinance, or their job will pay them more so they can refinance to a fixed rate loan,” Helms said. In reality, things often don’t work out that way.
Adding to the problem is the slowing rate of home appreciation. Houses may not appreciate enough to refinance, or people are not making more money in their jobs. If housing prices begin to fall here, the number of foreclosures could rise.
“A lot of these ARM loans were made a couple of years ago, so October through December of this year we are going to see a lot of ARMs resetting. If our housing market decreases and goes south, we will encounter the same problems that people in Colorado, Texas, and Florida are going through,” Helms said.
So what should you do if a foreclosure notice could be in your future? Helms said the critical thing is to address the situation as quickly as possible. You may be able to work with your lender to keep your home. If that isn’t possible, selling the home may be the best way to keep your financial future unscathed.
“Many lenders never hear from their borrowers until the home is in foreclosure,” Helms said. “Lenders truly don’t want to get the home back. They want to see the loan perform.”
Helms advises borrowers to contact their lender as soon as they are having trouble making their mortgage payment, or if they anticipate they will have trouble when an adjustable rate resets. Counseling organizations like his are also available to help.
Related Links
The Washington State Department of Financial Institutions foreclosure help and tips on how to avoid foreclosure
List of HUD Approved Counseling Agencies
Boson.com's Business Section article on how amid subprime fallout, some investors bank on catastrophes
Evaluation Associate's article, "The Subprime Mortgage Fallout."
Suite101.com's article, "Mortgage Defaults Affect Prices."
Scambuster
David Huey of the Washington State Attorney General’s Office reveals the scams behind foreclosure rescue offers.
Smart Money
Chris Matty, Chief Marketing Officer of ForeclosurePoint.com, explains how his company’s new online tool can help users profit from the rising tide of foreclosures.
Bulls and Bears
Analyst William Smead discusses market volatility.
Moneyville
A new exhibit at the Children’s Museum in Seattle provides interactive fun and a wealth of knowledge about money.
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