Wednesday, June 22, 2005

Mortgage madness

I just read about a mortgage called an option ARM that gives you the option of 4 different payments a month.

1. Minimum payment (less than even interest only)
2. Interest only
3. the classic 30 year payment
4. the 15 year payment.

According to this article fromt he SF Chronicle, 50% of people choose option 1, which is essentially a payment that puts you in the hole deeper because you are paying less than the minimum. Assuming interest rates rise, then if you select option 1, then you are creating negative amortization. In the words of my Polish friend Alex, WHAT THE FUCK???

To my cynical peepers, the insane predatory credit card market is being extended to the mortgage market. Lenders are starting to prey on people who have no problem getting in way over their head.

I'm no Alan Greenspan (which isn't saying much these days), but there are going to be a shitload of foreclosed homes on the market in the next couple of years.

Here is the link to the article.

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