How much do you charge to sell and buy a house?” asked the gravely voice on the other end of the phone.
The caller was a retired woman in her 70’s and her husband in her 80’s. She and her husband purchased a house at the end of 2005 thinking this is where they would stay for the rest of their lives. They were seduced with a teaser rate loan AKA the option arm loan. The option ARM loan allows home buyers to only pay so much on their mortgage. What is left is added to the principal. Not really understanding how this loan works. They signed up.
“I’ve talked to 11 lenders so far. I love my house,” she said. She was clearly upset.
“Let me run some quick calculations and see what type of mortgage you can afford,” I replied.
The home purchase they made was about double what they could really afford under a standard fixed rate loan. Their mortgage principal was growing at a rate of $1,000 per month. In just a few months, what little equity that had, would be eaten up with this type of loan. They would upside down in a very short time.
“You are going to have to sell or face foreclosure.”
“Those lenders who do these loans should go to jail. I won’t go into foreclosure, so there is nothing to do but sell.”
I recently blogged about the coming tsunami here in Salem Oregon for subprime woes that have affected the rest of the country. Oregon had been fairly conservative in its lending practices, so we weren’t as hard hit as other parts of the county where it was very common. In 2006, option arms and other forms of lending started to become more commonplace here. It is expected that Oregon will be at its fullest foreclosure potential here in the next 6 months with these non-conforming loans.
11 days into 2008, I received my first call for help.
And so it begins…