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Real Estate Market Not Rising Fast Enough to Save Struggling Borrowers

(EMAILWIRE.COM, February 12, 2007 ) SACRAMENTO, CALIF — During the past several years in housing markets on the East and West coasts many people purchased homes that were more expensive than they could afford because they believed that they could always sell their house for a profit if their financial situation worsened. Unfortunately, for thousands of these homeowners these plans are not working out as expected.For many people an adjustable rate mortgage was the only way they could secure a low enough monthly payment, in the short term, to afford a home. Skyrocketing home prices created a boomtown mentality and first-time homebuyers felt that if they did not get into the market they might never be able to do so. According to experts such as Patrick McGilvray, J.D., President of “the chickens are beginning to come home to roost and many people who borrowed money to buy homes are suffering from payment shock as their monthly payments jump significantly. Furthermore, people who want to sell their house fast cannot do so because the residential real estate market has slowed considerably.”Mr. McGilvray is referring to what happens when an adjustable rate mortgage’s intial low interest rate period expires and the loan readjusts. Many policy experts and government officials are calling now for an analysis of a borrower’s ability to pay their mortgage when it readjusts, not just during the initial period.According to the Mortgage Bankers Association, 12.5 percent of riskier mortgages were delinquent in the fall of 2006 and that almost 1 million homeowners across the country lost their homes to foreclosure or missed their monthly payments from July to September.Pam Canada, executive director of NeighborWorks Home Ownership Center in Sacramento, said of people like this, “The market did not save them…This was a nightmare with no happy ending.”Ed Smith Jr., CEO of Plaza Financial Group, Inc. of San Diego, California said of the mortgage industry, “Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes. The problem is that many consumers have not prepared an exit strategy.”Further complicating the residential housing picture is the fact that almost half of the consumers in the United States think that a housing price crash will occur in their local real estate market sometime in the next three years.This information was recently collected during a survey conducted by Experian and Gallup. Experian of Costa Mesa, California reported that the 47 percent of Americans who feel a crash is likely is up sharply from the 37 percent who felt this way in May of 2005 and the 42 percent who said the same thing in April of 2006.Experts estimate that 90% of people who secured a mortgage loan based on ‘stated income’ in the past several years lied about their income. When a rational observer considers this in the context of a rising interest rate environment, and stagnant or falling home prices her or she must assume that we are seeing the early edges of what could be a very destructive economic hurricane.Contact:Patrick McGilvray, J.D.manny@thehomebuyingcenter.comTel: 916-920-3278

Patrick McGilvray, J.D.
Patrick McGilvray, J.D.


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