Foreclosures in New Jersey
Sub-prime Loans and Foreclosures in New Jersey
By Nancy Woodward
The mortgage market has seen a large increase in the sub-prime market arena. This type of loan is fairly new. These loans provide the opportunity for those with low credit scores to become homeowners. Unfortunately this type of loan has also created an opportunity for purchasers to obtain loans without truly understanding the ramifications and, in some cases, the cost they will be paying in the future.
Lending practices in the sub-prime market contributed to the increasing number of foreclosures that is shaking the Real Estate Market in New Jersey. A new version of loan – the exploding ARM – is responsible for the increase.
These loans are hybrids of the ARMs we are familiar with. They start with a low rate, and run for thirty years. The rate resets after two or three years. The new rate which is significantly higher creates a much higher mortgage payment. In 2005, initial rates were set at seven percent increasing two ten percent after two years. This rate can increase in six months to a year from now.
In 2006 Fitch Ratings reported that 2/28 sub-prime ARMs carried an average ‘payment shock of twenty-nine percent over the initial rate even if the short-term interest rate remained the same. For those given loans with very low rates based on the income they reported when obtaining the initial loan, this increased payment can be a disaster.
The current state of the housing market is softening. Interest rates are increasing and home sales prices are declining. This situation increases the possibility of financial problems. As the sub-prime market loan’s reset at higher rates, this will result in more delinquencies. It is possible for homeowners to find they cannot refinance their loan. The declining prices result in declining equity and perhaps larger loans than the remaining equity in the property.
As usual, I suggest you do your due diligence before signing on the dotted line.
By Nancy Woodward
The mortgage market has seen a large increase in the sub-prime market arena. This type of loan is fairly new. These loans provide the opportunity for those with low credit scores to become homeowners. Unfortunately this type of loan has also created an opportunity for purchasers to obtain loans without truly understanding the ramifications and, in some cases, the cost they will be paying in the future.
Lending practices in the sub-prime market contributed to the increasing number of foreclosures that is shaking the Real Estate Market in New Jersey. A new version of loan – the exploding ARM – is responsible for the increase.
These loans are hybrids of the ARMs we are familiar with. They start with a low rate, and run for thirty years. The rate resets after two or three years. The new rate which is significantly higher creates a much higher mortgage payment. In 2005, initial rates were set at seven percent increasing two ten percent after two years. This rate can increase in six months to a year from now.
In 2006 Fitch Ratings reported that 2/28 sub-prime ARMs carried an average ‘payment shock of twenty-nine percent over the initial rate even if the short-term interest rate remained the same. For those given loans with very low rates based on the income they reported when obtaining the initial loan, this increased payment can be a disaster.
The current state of the housing market is softening. Interest rates are increasing and home sales prices are declining. This situation increases the possibility of financial problems. As the sub-prime market loan’s reset at higher rates, this will result in more delinquencies. It is possible for homeowners to find they cannot refinance their loan. The declining prices result in declining equity and perhaps larger loans than the remaining equity in the property.
As usual, I suggest you do your due diligence before signing on the dotted line.
Labels: foreclosure, foreclosures in NJ, loans, Mortgage loan, mortgage loan advice
posted by Nan at 12:25 PM
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