Decius wrote:
Teaser-rate loans allowed folks who otherwise could never have afforded to own a home to buy one, at least until the rate reset.
It’s not hard to predict what happens when rates reset. All of a sudden, buyers who have been paying $1,000 per month face monthly payments of $4,000. Many, perhaps most, go into default.
The possibility that this would become a major problem became apparent as early as 2005.
We've been saying that, too.
At least $500 billion more of teaser-rate mortgages are scheduled to reset over the next several years. In all likelihood, they too will go into default and become toxic waste. Nothing in Mr. Paulson’s original proposal was intended to do anything about this next $500 billion installment – or, indeed, to prevent lenders from making more teaser-rate mortgages in the future.
Is it reasonable to prohibit teaser rates on mortgages by law? Is there anyone out there with graphics of what the future resets look like and how far through the process we are? Apparently last December they slowed the rate of resets.
From the bank's perspectives... wouldn't it be better to get rid of the rate hikes than to kill the mortgage and have to repossess the house?
