908 Billion in Interest-Only Mortgages Still Out There
Many of those who watch the real estate market are feeling that the corner is being turned, and it very well might be. But there are still minefields out there. Like 2.8 million interest only mortgages that are still on the market.
I do not need to tell you that many of these loans are still very toxic and are attached to homes that are underwater. Essentially homeowners are betting that the homes are going to rise, otherwise they will be repaying a higher balance in a shorter time when the loan matures.
The odds of homes prices rising enough to get these folks above water are slim to none, which means a whole new crop of foreclosures or short sales hitting the market.
Still, interest-only loans represent an especially large problem. An analysis for The New York Times by the real estate information company First American CoreLogic shows there are 2.8 million active interest-only home loans worth a combined total of $908 billion.
The interest-only periods, which put off the principal payments for five, seven or 10 years, are now beginning to expire. In the next 12 months, $71 billion of interest-only loans will reset. The year after, another $100 billion will reset. After mid-2011, another $400 billion will reset.
John Karevoll, a longtime senior analyst for MDA DataQuick, sees the plight of interest-only owners this way: “You’re heading straight for a big wall and you can’t put the brakes on.” NYTimes.com.
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Pingback by Housing Market News: Mortgage Rates, FHA and More « AccuriZ on 9 September 2009:
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Comment by Portland Real Estate on 9 September 2009:
Talk to a loan officer, there are many people that can get a better loan if their current one is toxic. Sometimes the situation can be changed, but sometimes it cannot. It is much better to talk to a professional than sit around waiting for the situation to get to a point where you get foreclosed on.
-Tyler
Comment by Brandon Green on 9 September 2009:
Not to laugh at a big problem, but great picture!
Pingback by Weekly summary of real estate news, Memphis comments, and other interesting stuff – September 9th | Memphis Real Estate Buzz on 10 September 2009:
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Comment by Rhonda Porter on 10 September 2009:
I wouldn’t call all of the interest only loans toxic–they are detrimental if they are adjusting to fully amortized when the home owner is not in the position to refinance or sell. Where mortgages like this become toxic is when the home owner selected the program because of chasing a low payment or trying to qualify for more home than they could afford…they didn’t have a long term plan.
Comment by Brendan Aiello on 10 September 2009:
While many consumers are can talk to a loan officer/loan-mod expert some will be denied and still have to short-sale/foreclose.
However, the many that will be fortunate enough to get a loan modification… someone will be paying for it. The banks will have bad reports and stocks will go down affecting many in their buying power. Then some larger banks may get government help then everyone will have to pay in taxes.
On a positive note, my area is turning around and I don’t think we will be affected significantly by the second wave of debt problems. People are now learning how to profit in this economy and are buying up good deals and foreclosures as they hit the market; many are “all cash” deals.
Comment by Baltimore Homes on 10 September 2009:
Yes, this is the final wave of foreclosures in my opinion.
Comment by delaware reos on 14 September 2009:
The odds of home pricing sometimes depends with the market. Getting loan modification might help but make sure you be able to pay.
If you are after with the quiet life Delaware reos offers that kind of living.
Comment by Brian Ward on 16 September 2009:
Yikes. I knew there was trouble ahead but this is much more than I’d hea4rd about previously. Thanks for the heads-up
Comment by Judie Berger on 16 September 2009:
I sure hope there aren’t too many of them in Sarasota Florida. We’re in enough trouble as it is now
Comment by Bruce Dietz on 20 September 2009:
This is a prime example of people trying to “Keep up with the Jones’”. Most buyers want more house than they can afford. The interest only loans provided the perfect vehicle for them to over extend themselves. Now, reckoning day has arrived for many homeowners.
As the interest only mortgages come due, it may flood the market with short sales and foreclosures. Hopefully, there will be enough buyers in the market to assume the influx of homes.
Comment by Janet Dugan on 30 October 2009:
When, oh when, will they learn. Interest-only mortgages are an instant ticket to trouble nut the banks keep pushing them on people.