The "danger years" for homeowners
http://money.cnn.com/2006/03/28/real_estate/mortgage_danger_years/index.htm
28 Mar 2006
Millions of mortgage borrowers are entering their "danger years," when delinquencies peak and owners risk losing their homes. Although borrowers are often told that the first year is the hardest, delinquencies have historically reached their highest points during the third and fourth years of mortgages, according to Doug Duncan, chief economist for the Mortgage Bankers Association (MBA). There are a few forces at play: After years of strained budgets, borrowers may have little in savings to draw on to handle a crisis; this is also the period when major repairs begin to crop up; finally, many home buyers go through life changes, including starting a family.
The number of Americans affected by the coming danger years could be huge. Half of all mortgage loans are three years old or less, according to the MBA. Nearly $3 trillion in mortgages originated in 2002, $4 trillion in 2003 and $3 trillion again in 2004. Many were refis, but there were also record totals of new purchases as well.
In addition, many of these transactions involved risky loans, such as interest-only ARMs and no-down payment loans. A recent report from the National Association of Realtors found that the median new home buyer put down just 2 percent in 2005. Forty-three percent put down no money at all. And according to SMR Research, some 25 percent of loans were interest-only, do nothing to reduce the debt on the house. "Lenders used to offer interest-only loans to only the best credit-quality prospects. That's no longer true," said Stuart Feldstein, founder of SMR Research.
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