Borrowers hit as refinancing options vanish As world stock markets reel from the collapse in the subprime lending market and Countrywide, the biggest US mortgage lender, struggles to stay afloat, borrowers such as Cynthia and Joe Esperaza are grappling with problems of their own. The Esperazas have two children and live in Santa Clarita in California's San Fernando Valley. They took out a Countrywide loan three years ago after having been sent promotional literature by a local mortgage broker. The Esperazas were given a teaser rate of 1 per cent for the first two months of the mortgage. But then, they say, the rate rose in stages - from 2.8 per cent at first, all the way to 8 per cent currently. Eventually it will hit 9.95 per cent. As a result, the Esperazas say, they cannot keep up. They are paying each month only part of the interest that they owe - not the principal - and that means their debt is continuing to grow. In the mortgage industry this is known as negative amortisation or "neg am". For the Esperazas, it means that having borrowed $326,000 three years ago, they now owe $344,000. (... In California, where Countrywide is based, foreclosures have soared 800 per cent as borrowers fall behind in their payments. (...)Their loan was fixed at 5.9 per cent for the first two years. After the two-year teaser period lapsed, the rate rose to 8.9 per cent. It will increase by an additional percentage point every six months until it reaches 12.4 per cent. "They didn't tell us this was going to happen," says the father of the family. His wife adds that she was told she would be able to refinance the loan before the end of the two-year introductory period.
As world stock markets reel from the collapse in the subprime lending market and Countrywide, the biggest US mortgage lender, struggles to stay afloat, borrowers such as Cynthia and Joe Esperaza are grappling with problems of their own.
The Esperazas have two children and live in Santa Clarita in California's San Fernando Valley. They took out a Countrywide loan three years ago after having been sent promotional literature by a local mortgage broker.
The Esperazas were given a teaser rate of 1 per cent for the first two months of the mortgage. But then, they say, the rate rose in stages - from 2.8 per cent at first, all the way to 8 per cent currently. Eventually it will hit 9.95 per cent.
As a result, the Esperazas say, they cannot keep up. They are paying each month only part of the interest that they owe - not the principal - and that means their debt is continuing to grow. In the mortgage industry this is known as negative amortisation or "neg am". For the Esperazas, it means that having borrowed $326,000 three years ago, they now owe $344,000.
(... In California, where Countrywide is based, foreclosures have soared 800 per cent as borrowers fall behind in their payments.
(...)Their loan was fixed at 5.9 per cent for the first two years. After the two-year teaser period lapsed, the rate rose to 8.9 per cent. It will increase by an additional percentage point every six months until it reaches 12.4 per cent.
"They didn't tell us this was going to happen," says the father of the family. His wife adds that she was told she would be able to refinance the loan before the end of the two-year introductory period.
Can these people really pretend that a 1% rate was a reality? Or even 5.9%? They were counting on cheap money as far as the eye can see and closed their eyes to the risk. It's a sin that brokers preyed on their hopes but they are partially culpable for not having the sense to understand variable means variable. Not variable only if it moves in my direction and someone will show up to bail me out in a year or so. Just what did the notice that the max could be 12.4% mean to them?
Their real problem is the house probably isn't worth $344k. Time to call the bank and work out a better deal or hand them the keys and face reality. They've lost their down payment but probably gotten cheap rent as their interest payments were tax deductible.
Which is exactly what a mortgage broker said to me three years ago.
I don't think the ignorant have an exclusive franchise on gullibility. You can't be me, I'm taken
