“Can’t pay, can’t sell, can’t refinance”

From the New York Times:

It Seemed Like a Good Bet at the Time …

FOR Inga Rogers, the party ends in 38 days.

On Nov. 1, the adjustable-rate mortgage, or ARM, she took out three years ago at the spectacular rate of 3.875 percent will get considerably more expensive. Ms. Rogers, a single mother of two living in a three-bedroom ranch in suburban Boston, faces a rate increase of three percentage points, raising her monthly house payment by $300, to $1,419, and putting her at a financial crossroads.
…
The increases have caught many homeowners in a “can’t pay, can’t sell, can’t refinance” vise, in which their ARM payments are outpacing their incomes and their homes have not appreciated enough to help cover the cost of a refinanced mortgage or to allow them to sell and walk away. For them, foreclosure looms.

But for most ARM borrowers whose house values rose sharply in recent years, there is ample fiscal room to switch to a loan with higher interest but lower angst. “Instead of facing significant payment shock, a lot of people are looking to refinance because they’re fearful of further increases,” said Craig Focardi, an analyst with TowerGroup, a financial-services consultancy in Needham, Mass.
…
As in other pricey real estate markets, ARM’s are popular in New York. Steven Schnall, the president of the New York Mortgage Company, said ARM’s represented 57 percent of its loans in New York, compared with 48 percent nationally.

New York, he said, has a higher percentage of affluent homeowners who are more mobile and therefore less likely to need a long-term mortgage. “And they’re more able to afford the risks associated with ARM’s,’’ he said.

Affluent they may be, but many New York borrowers are unwilling to accept sharp mortgage increases. Michael D. Cohen, a partner in Phillips Nizer, a New York law firm, will soon refinance the ARM on his five-bedroom apartment on Park Avenue. The new ARM has a 7 percent rate cap for 10 years. “I’ve been receiving the benefits of low rates for years,’’ he said. “But you have to take the bad with the good.”

Discuss this in the forum