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[Gene GeRue <genegerue AT ruralize.com>]

Re-refinancing, and Putting Off Mortgage Pain

By VIKAS BAJAJ and RON NIXON
Published: July 23, 2006

It is the latest twist in the gravity-defying 
world of the high housing prices and exotic 
low-rate mortgages: As monthly payments on 
adjustable-rate mortgages are starting to 
balloon, many Americans have found a way to put off the day of reckoning.

They are refinancing with new adjustable-rate 
mortgages that keep monthly payments low ­ for 
now, that is, though their payments will likely rise even higher in the future.

“Some people would say I am a little crazy,” 
acknowledged R. Lance Perry, 42, of Danville, 
Calif., one of the new breed of people 
refinancing their mortgages. But faced with a 
sharp increase in his monthly payments and a need 
to take cash out of his home, he refinanced 
earlier this year to keep his payments the same.

By the time the rate goes up, he figures, his 
income will have increased enough to cover the 
higher payments, he will have refinanced again or he will have moved.

Like Mr. Perry, millions of Americans have turned 
to adjustable-rate mortgages, or A.R.M.’s, in 
recent years to afford a home as prices soared. 
Typically set at artificially low rates in the 
first years of the loan, these mortgages are then 
reset at the prevailing interest rates. For 
borrowers, the bet was that interest rates would remain low.

Now, the first big wave of the mortgage boom is 
cresting as more than $400 billion worth of 
adjustable-rate mortgages, or about 5 percent of 
all outstanding mortgage debt, will readjust this 
year for the first time, according to Loan 
Performance, a research firm. Next year, another 
$1 trillion in loans will readjust.

Yet instead of paying more now, many borrowers 
are refinancing into their second or third 
adjustable-rate mortgage, loan data indicate and industry experts confirm.

So far, the number of borrowers refinancing this 
way is relatively small ­ several hundred 
thousand in the estimate of the credit ratings 
firm 
<http://topics.nytimes.com/top/reference/timestopics/organizations/f/fitch_ratings/index.html?inline=nyt-org>Fitch 
Ratings ­ but mortgage industry officials and 
analysts expect the numbers will surge next year. 
In doing so, these borrowers are pushing out any 
eventual shock of higher payments by another two 
or three years, if not longer.

“They get another two- or three-year hybrid with 
a low introductory rate to keep payments down,” 
said Frank E. Nothaft, a vice president and chief 
economist at 
<http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=FRE>Freddie 
Mac, the mortgage buyer. “They’re trying to put 
it off forever, which is O.K. as long as interest 
rates are low. But when they start to spike, then 
it’s going to be more problematic.”

For now, this mini-refinancing boom is assuaging 
fears that rising interest rates and higher 
monthly payments would drive some borrowers into 
foreclosure or force them to scale back sharply 
on other spending. As a result, consumer spending 
may hold up better than some economists had thought.

But the refinancing also represents a 
doubling-down on a bet that housing prices will 
continue to rise on the West and East Coasts and 
in other hot markets. If the value of the home 
falls closer to the amount of the loan, that 
could curb the ability to refinance, and may 
prompt the homeowner to either invest more in the home or to sell it.

Still, borrowers like Mr. Perry say the loans 
make sense because in a few years they plan to 
move to another home, earn more or refinance 
again, often using the same assumptions they made 
when they took out their earlier loans.

With his new loan, his third adjustable-rate 
mortgage, Mr. Perry, a former technology project 
manager, cashed about $200,000 out of his home’s 
equity and is investing it into his four-year-old 
financial planning business. “I could have sold 
my house and made my family move,” said Mr. 
Perry, 42, who lives with his wife and a 
3-year-old son in Danville, about 20 miles east 
of Oakland. “But I didn’t do that. I said, ‘Look, 
I want to start a new business,’ and this product allowed me to do that.”

The complete article is at:
http://www.nytimes.com/2006/07/23/business/23mortgage.html?ei=5094&en=48d3badc80108762&hp=&ex=1153627200&adxnnl=1&partner=homepage&adxnnlx=1153590980-vrbHhIYb/3iVZhgPkN5Z+A 
> From don.bowen AT earthlink.net  Sat Jul 22 14:30:20 2006
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Subject: Re: [Homestead] Real estate financing, July, 2006
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At 7/22/2006, you wrote:
> By the time the rate goes up, he figures, his
> income will have increased enough to cover the
> higher payments, he will have refinanced again or he will have moved.

Good luck.  According to the most recent figures middle class incomes have
not kept up with inflation.  Most of the wage increases so often touted
have gone to the upper 2% of wage earners.  Middle class buying power has
remained stagnant while lower class buying power has shrunk.  This is
evident in the negative savings rate as buyers struggle to maintain levels
of consumption.  Increased energy costs are just now working their way
through the economy and will further erode buying power.



Don Bowen              Awl Knotted Up        KI6DIU

http://www.braingarage.com

My travel journal
http://www.braingarage.com/Dons/Travels/journal/Journal.html

I am omnivagant.
> From intuit AT teleport.com  Sat Jul 22 15:35:25 2006
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From: "Linda" <intuit AT teleport.com>
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Subject: Re: [Homestead] Real Estate/Bubble/Hardship Case
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Van Dell, thanks much for the information. If the weather isn't *still* up
into the 100*s I'll head to the court house monday, and check w/the county
laws. At least I will know how to present myself when asking my questions!
----- Original Message -----
From: "VAN DELL JORDAN" <vdjor AT yahoo.com>
To: <homestead AT lists.ibiblio.org>
Sent: Saturday, July 22, 2006 8:24 AM
Subject: Re: [Homestead] Real Estate/Bubble/Hardship Case


> Linda,
>
> I don't know about your county but our zoning laws
> would allow us to use any size desired.   OH wait a
> minute....we don't have any zoning laws.  I guess that
> was a cruel thing to point out.
>
> Seriously, make decisions based only on what your
> local authorities tell you.  Each jurisdiction has
> its' own requirements unless their is a statewide code
> When you are told something find out what the
> authority is.  Is it specifically written that way? or
> is that the individuals interpretation?  Sometimes
> their are exceptions or variances so ask those
> questions if things aren't looking good.
>
> You may have guessed that was one of the things I did
> in my time as a city bureaucrat.  Instead of saying
> this is what you need to do, I preferred to find out
> what they wanted and tried to find a way to do that
> and still make it legal.  Not all public employees
> share that attitude but most are cooperative if
> approached in a reasonable manner.
>
> Van Dell
>
> --- Lynda <lurine AT softcom.net> wrote:
>
> > Call your local planning department and building
> > department.  Tell them you
> > want the codes for your particular area and all the
> > specifications, forms
> > for permits, etc.
> >
> > We looked into getting one for our son.  I know the
> > resale value of these
> > things is pretty good.  I've seen them for sale for
> > the same price they sell
> > them new.  Also, a lot of the manufacturers have
> > financing available.
> >
> > Lynda
> > ----- Original Message -----
> > From: "Linda" <intuit AT teleport.com>
> >
> >
> > > Lynda, thanks! I will tour the site. But I still
> > need to find what's the
> > > largest model the county will allow. And if too
> > expensive, as I will need
> > > to
> > > make the purchase, maybe I can find a used one.  I
> > wonder if the county
> > > would scream if we went the way of a yurt?
> >
> > _______________________________________________
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> >
> >
>
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