Dangerous mortgage deals

By Melissa Wirkus

The housing market is slowing down, and buyers and sellers alike are getting desperate. A huge problem that has arisen out of sheer irrationality and desperation is people not being able to keep up with their monthly mortgage payments because they signed into loans that they did not fully understand, or did not want to understand.

Now, more and more than ever before are home builders and lenders trying to pull the wool over the potential homebuyer’s eyes, and get them into loans with impossible rates and terms. They tout super low monthly payments, and only in the fine print does it really say how big your payments could get. Consumers have to be increasingly aware of these mortgage deals that are mounting during this time when homebuilders will do anything to lure-in a buyer.

A September 7, 2006 article by Seth Jayson of fool.com, “Homebuilders get comical,” looks into the dangerous mortgage deals that many companies are offering that could lead to big trouble for new homebuyers.

Jayson compares the sales tactics of some homebuilders similar to the tactics used by an RV salesman in an episode of The Simpsons. In the episode Homer wants to by an RV to keep up with his neighbors and goes to a lot where he is given a ridiculous loan of a couple hundred dollars a month but does not find out the interest rate or the terms. Now, nobody in their right mind would do a thing like that, but it seems more and more people are doing things like that these days.

“This morning I spotted a high-end homebuilder in the Washington, D.C., area using sales tactics that could have been cribbed directly from that episode. Via a full-page newspaper ad, Ryland Group is trying to entice buyers with lavish digs, promising a variety of living arrangements at what seem like rock-bottom prices. Take this one: ‘3-4 bedroom garage townhomes... $1,174 per month.’ Or this one: ‘Single family and manor homes... $1,478 per month.’”

“Luckily, our universe isn't quite as skewed as the Simpsons'. Ryland discloses, in microscopic print, that these payments are in fact based on teaser rates of 2.75%, a rate that disappears after one year. After that, you're stuck with a 6.25% rate on a 40-year mortgage. You got that right, 40 years.”

Many people are signing into these mortgages and claiming that they “didn’t know,” about all of the fine print; such as rate and payment increases.

Homebuilders are teasing their potential buyers into thinking that the brand-new home is something they can afford. Well that may be true for year one, but the rates increase buy so much, that the majority of people can not even dream of affording the new monthly payments.

People are getting stuck with double their monthly payments and no way to refinance. On top of all this, the market is so slow that they can not even sell their house before things get any worse, because there are no buyers.

“Some believe the collapse of the housing bubble will actually toss the economy into a recession. With growth in take-home pay continuing to lag inflation, where will Americans get their gasoline, car, clothing, food, and iPod money if they can't play ATM with their bricks-and-bubble equity? I have this sneaking suspicion that the near future is going to be a lot more spooky, and a lot less amusing, than The Simpsons, season one.”

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