Luxury Home Owners Atop Financial Time Bomb as 'Option Pay' Adjustable Rate Mortgages Reset

Adjustable Rate Mortgages Reset
06.08.09, 6:06 AM ET
Millions Stretched Themselves Financially, Face Painful Adjustment, Default, Foreclosure - as Payments on Option Pay
Adjustable Mortgages Reset.
NEWPORT BEACH, Calif., June 8 /PRNewswire/ -- Adjustable rate mortgages (Pay Option ARM's) were widely used in the hot
housing market of recent years. Many households that took advantage of "Option Pay" loans or "teaser rate" loans - types of
adjustable rate mortgages that holds down payments for an initial period or when the borrow selects a lower payment and defers
interest and/or principle-- are facing resets of their interest rates that can cause monthly payments to balloon upward of 65% as
reported by Credit Suisse (CS). "Home owners list major payment adjustments". For example, a 1 million dollar mortgage taken
out 36 months ago with an initial payment of $2,528 per month could jump to just under $7,000 per month.
Sean Reynolds, Managing Director of Mortgage Loan Restructuring at the Law Offices of Joseph R. Manning, Jr., A Professional
Law Corporation that focuses on loan modifications, says the handwriting is on the wall, adjustments will mean multitudes of
borrowers will be unable to make the higher payments and may be forced to sell their homes, or worse, lose them to foreclosure.
The firm cites statistics from 60 Minutes indicating that Option Pay Mortgages are the next wave of defaults that are now plaguing
the Luxury Home Market. It's a predictable time bomb. Reset dates indicate as much as 70% of "Pay Option" ARM loans may
default over the next three years. Many home owners are now defaulting on the teaser rates indicating the inevitable when these
loans reset. According to CNBC 12% of all mortgages in the U.S. are not current.
Many home owners locked in rates as low as 1 percent in the early stages of their Pay Option Adjustable (ARM). In almost every
case these mortgage payments will more than double once the rate is adjusted. And that spells tragic news for homeowners --
according to Credit Suisse (CS) a third of loans are deeply delinquent and resets will begin to accelerate next spring, rising from
about $4 billion resetting in March 2010 to a peak of $14 billion in September 2011. About $500 billion of Pay Option ARM loans
are outstanding, according to the bank.
Further compounding the problem is many types of adjustable rate mortgages (ARMs) or Pay Option (ARM's) carried heavy
prepayment penalties that may make it difficult to refinance once the loan adjusts. Many of these loans also carried caps on the
amount of interest that could be deferred causing a recast in as little as two years from the date the loan was funded.
"Consumers are in a real bind, especially in California and Florida," said Sean Reynolds, Managing Director of Mortgage Loan
Restructuring at the Law Offices of Joseph R. Manning, Jr., A Professional Law Corporation that works to modify these types of
loans.
Fortunately, Sean Reynolds has been specializing in financing solutions for over 18 years, and has worked with a broad range of
clients that used Pay Option ARM to finance their homes. He is now assisting the same homeowners with loan modifications
along with real estate attorney Joseph Manning.
As a civil trial attorney and real estate attorney, Joe Manning is also prepared to litigate with lenders, brokers and servicers that
violate the rights of his clients. "Litigation is the last resort, but my office is prepared to litigate where appropriate," says attorney
Manning.
Based in Newport Beach, Calif., The Law Offices of Joseph R. Manning, Jr., A Professional Corporation,
( http://manningloanlaw.com ) is a boutique law firm that focuses on providing concierge-level service and helping consumers
save their homes through mortgage modifications.
SOURCE Law Offices of Joseph R. Manning, Jr.
Copyright 2009 PR Newswire All rights reserved.

Luxury Home Owners List Financial Time Bomb as Mortgage Resets in 2007 Come Due

Luxury Home Owners List Financial Time Bomb as Mortgage Resets in 2007 Come Due

THIS WAS WRITTEN IN 2007

Millions Stretched Themselves Financially, Face Painful Adjustment as Payments on Adjustable-Rate MortgagesReset

SAN CLEMENTE, Calif. -- Adjustable rate mortgages
(http://smrfinancial.com/payment.html) were used in the hot housing market of recent years. Many households that took advantage of "teaser rate" loans -- types of adjustable rate mortgages that hold down payments for an initial period -- are facing resets of their interest rates that can cause monthly payments to balloon upward of 10% to 50% as reported recently by www.realestatejournal.com. Luxury home owners list major payment adjustments. A 1 million dollar mortgage taken out 30 months back that started at $2,528 per month could jump to just under $7,000 per month.

SMR Financial, an Orange County mortgage firm that specializes in adjustable rate mortgages and placing consumers in home loans from $1 million and up, states adjustments will mean many borrowers will have trouble meeting the higher payments and may be forced to sell their homes, or worse, lose them to foreclosures. The firm cites statistics from www.marketwatch.com indicating default notices jumped by 145% in the last three months of 2006.

Luxury home owners list locking in rates as low as 1 percent in the early stages of their Adjustable Rate Mortgage (ARM). These mortgage payments could double once the rate is adjusted to current market conditions. And that spells tragic news for homeowners -- according to www.realestatejournal.com, a recent study by First American Real Estate Solutions, a unit of title insurer First American Corp. (NYSE:FAF), projects that one in eight households with adjustable-rate mortgages that originated in 2004 and 2005 will default on those loans.

This is further compounded by the fact that many types of adjustable rate mortgages (ARMs) or Pay Option ARMs carried heavy prepayment penalties that may make it difficult to refinance once the loan adjusts. As well, some of these loans carried caps on the amount of interest that could be deferred causing the payments to sometimes double in just over two years.

"Consumers are in a real bind, especially in California and Florida," said Sean Reynolds, president of SMR Financial, which works to cut traditional monthly mortgages by approximately 50 percent. "With California foreclosures up 160% since last year, and www.marketwatch.com reporting $2 trillion coming up for adjustment this year alone, the demand for refinancing adjustable rate mortgages will be unprecedented."

Fortunately, SMR Financial has been specializing in refinancing solutions for over 18 years, and has worked with a broad range of clients -- luxury home owners list from professional athletes, CEOs and entertainment industry professionals -- to match their needs to the right program. One alternative many of SMR's clients are seeking is negative amortization loans. Funded properly this form of financing is a viable alternative for homebuyers that need to minimize their monthly payments while shedding themselves of the thousands they will be paying through a mortgage reset.

There are certain tax advantages to adjustable rate mortgages with negative amortization as well, adds Reynolds. "With a negative amortization loan, not only are the payments reduced significantly, but since the entire payment being made is interest, it can all be deducted on federal tax returns. For many homeowners faced with a reset of thousands a month in payments, this form of financing represents a solid option -- and sometimes the only option -- to avoid disaster and get their mortgage payments back to a reasonable level."

About SMR Financial

Based in San Clemente, Calif., SMR Financial is a boutique mortgage firm that focuses on providing concierge-level service and helping consumers purchase California dream homes with market values of approximately $1 to $10 million. Luxury home owners list SMR as the leading authority that those "in the know" turn to when it comes to managing the complex financial makeup of the luxury homeowner.

High-End Foreclosures Are Next

Published: Wednesday, 27 May 2009 1:34 PM ET Text Size By: Diana Olick
CNBC Real Estate Reporter

I heard a startling statistic from the National Association of Realtors this morning…no not that home sales are actually increasing, but something about the high end of the market.

Chief economist Lawrence Yun said that the supply of existing homes for sale over $750,000 has reached a forty-month supply. Yep, that means it would take well over three years at the current place to sell off all of those homes.

The trouble is manifold: Jumbo loans are pricier and more difficult to get, job losses are mounting, and buyers in that price home are generally move-up buyers, so they have to sell their own homes first. I asked Mr. Yun if, given how hard it is to sell a home in that price range, he expects to see more foreclosures of high-end properties. He said absolutely.

That’s going to mean a new phase of the current housing recession. So far we’ve seen the “correction” of a boom market that was driven by faulty, exotic loan products, investors looking to make a quick buck, and average Americans using their homes as ATMs. Now the losses are being driven by traditional economic factors and by sweeping price drops across the nation.

Yesterday Fitch ratings estimated that up to 75 percent of the modifications now being done through the administration’s Making Home Affordable program will re-default in six months to a year. I’m not talking about the old mods, which were largely repayment plans that could actually raise monthly payments. I’m talking about the new mods, which lower monthly payments to 31 percent of a person’s income. I couldn’t understand Fitch’s reasoning, so I called them.

Diane Pendley, managing director at Fitch, said the problem is not on that “front-end” ratio, but on the back end, which is all of the borrowers other debt (credit cards, car loans, student loans, etc.). She said that in talking with servicers, she’s hearing other debt is so high that most of today’s troubled borrowers cannot afford any loan payment at all, even at a very modest debt to income ratio. “Just getting the house payment done doesn’t mean their lifestyle is sustainable,” she said.

Another problem is that with home prices continuing to fall, more and more borrowers, who are essentially just renting their mortgages now because they will never see any home equity, are walking away. Even if the mortgage payment is low, the property taxes and home maintenance costs are padding that payment, and without an upside to the investment, there’s simply no reason to pay.

Suffice it to say, the foreclosure crisis, on the high and low ends, is not getting any better. It’s great that we’re seeing more sales action in the “distressed” market, but that’s not a real organic recovery. Now that the administration has managed to lower interest rates for conforming loans, they have to focus on jumbos, on jumbo rates and modifications. These are not all million-dollar homes of the rich and famous. In many markets, especially urban markets, a million-dollar home is a basic three bedroom, two bath on a postage stamp lot.

Tomorrow we get the most recent data from the Mortgage Bankers Association on loan delinquencies. I’ll be watching the prime jumbos. You should be too.

RealtyCheck@cnbc.com

© 2009 CNBC, Inc. All Rights Reserved

Are you looking for foreclosure help or loan modification assistance? Please visit manningloanlaw.com for a complimentary consultation - we are here to help.

Its Prime Time In Forclosures

It's Prime Time In Foreclosures
Published: Thursday, 28 May 2009 1:08 PM ET

By: Diana OlickCNBC Real Estate Reporter
CNBC.com

It’s not like we didn’t know it was coming, but apparently it’s coming with a vengeance.

Prime fixed-rate loans have finally leapfrogged those nasty subprimes to take the lead in the race to foreclosure. The foreclosure rate on primes has in fact doubled in the last year, and almost half of the overall increase in foreclosure starts in the first quarter of this year was due to the increase in primes.

I got a call yesterday from Scott Scredon at the Consumer Credit Counseling Services in Atlanta. He says they’ve seen a distinct change in callers. “We’re getting calls from engineers and attorneys and post graduate students,” he says. “Many of these people run through their 401Ks and their savings and start living off credit cards and then they call a counseling agency for help. So it’s a new kind of person we’re seeing today, but it’s a sign of the times.”

HOUSING NEWS
1 in 8 Homeowners Late Paying or In Foreclosure

So I asked Jay Brinkmann, chief economist over at the Mortgage Bankers Association, why all these aggressive industry and government modification programs aren’t helping, especially if the troubled borrowers are not in those nasty, exotic subprime loans.

“We have seen already in April a step up in some of the actions filed on people who don’t qualify. But when we look at vacant homes, when we look at cases where people are simply out of work, there’s simply nothing there that can be modified or worked out if they don’t have a job,” notes Brinkmann. On top of that, more and more borrowers are redefaulting and ending up in the mod system again.

“Unfortunately, people that can’t live up to the promises they made originally when they were in a loan workout situation or simply that they were hoping things were going to get better and they did not. They then get back into the process and end up going to foreclosure. I think those factors will continue to drive the numbers up,” adds Brinkmann.

And one more thing: Freddie Mac estimates that 40% of the loans they have in foreclosure are on vacant homes. The borrowers don’t want a modification. Home prices have fallen so far that they will not see any equity for decades. So why pay?

On the bright side, if you can find it, the bulk of the trouble is still centered in four states: California, Nevada, Arizona and Florida, with Michigan, Ohio and Illinois close runners up. Brinkmann was surprised to see less of a national rise in foreclosures, but he is expecting it in the coming months.

© 2009 CNBC, Inc. All Rights Reserved

Are you looking for foreclosure help or loan modification assistance? Please visit manningloanlaw.com for a complimentary consultation - we are here to help.