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.

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.

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