(Via Housing Bubble) LA Times has a story about the increasing popularity of interest-only mortgages. An astonishing 47.8% of homes sold last year in California were purchased with interest-only, adjustable rate mortgages. In 2001, it was 1.4%, and I'd bet that almost all of those were purchased by investors who wouldn't be holding the property very long.
Many of these people are buying with no money down so when interest rates rise and they can no longer afford their mortgage payments, there's no disincentive to simply walk away from the property. You don't need to have very good credit to buy a house these days; what's a little bankruptcy blemish on one's credit report.
"I have $40,000 in student loans from my master's degree," Herron said. "I have high credit card debt. I'm a typical American. And yet they wanted to give me more debt to buy a house."
She wonders sometimes if she'll end up in foreclosure, if the bank will take her beloved home away from her when she can no longer pay her bills. Maybe it was a mistake to give her this money, maybe it was a mistake for her to take it. But she wasn't about to protest.
"If you're like me, you're so incredulous that anyone would give you any money whatsoever, you just close your eyes and sign the papers," Herron said. "I would have signed anything."
The state is that great fiction by which everyone tries to live at the expense of everyone else. - Frederic Bastiat