Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Beware the Latest U.S. Mortgage Market Trap

Housing-Market / US Housing Jun 02, 2014 - 07:02 PM GMT

By: Money_Morning

Housing-Market

Shah Gilani writes: Get ready. There’s more trouble ahead for home buyers, home builders, and especially homeowners who took out home-equity lines of credit before the housing crisis. Those heydays have turned into haymakers.

What’s already started to happen might not only knock out the formerly aspiring but now petering-out housing recovery, but also might knock the already weak economy to the ground.


Back in the good old days, when banks and mortgage shops were selling mortgage money and home-equity credit lines like carnival barkers wowing crowds into the big top, millions of homeowners steeped right in. That circus tent was nothing but a trap, however. And now I’m going to tell you what that trap means for those borrowers … and the rest of the economy …

Intoxicated by rising home prices, in the years before 2007 or so, homeowners took out hundreds of billions of dollars in loans against the equity in their homes. What made the deals most enticing were the terms. Most of the so-called HELOCs were 10-year interest-only loans (that sounds nice …) that would “convert” into 15-year amortizing mortgages (uh-oh!).

(Remember when we all seemed to be using our homes as ATMs? What were we thinking?)

Well, those trigger dates have been firing indiscriminately, shooting a lot of homeowners where it hurts the most.

According to today’s Wall Street Journal, some 817,000 homeowners, with $23 billion in loans, will see their interest-only holiday come to a reality-busting end this year. And this is just the beginning. Over the next three years, an average of $50 billion a year in HELOCs will be converting.

What does that look like to homeowners? The Journal cited two examples. A real borrower had his monthly payments on the $70,000 he borrowed rise from $270 a month to $560 a month. Those payments are “adjustable” and could rise dramatically if interest rates rise.

In an another example from the WSJ, a $100,000 loan with an interest-only payment plan and a 3.5% rate subjects the borrower to current monthly payments of $292. Once converted, the monthly payments will jump to $715 on a 15-year amortizing mortgage note. That would rise further to about $865 if interest rates rise 3 points.

The consumer credit reporting agency Equifax and the U.S. Office of the Comptroller of the Currency recently reported that delinquencies on HELOCs made during the heydays doubled last year over the previous year.

Homeowners aren’t going to be able to refinance those HELOCs if they have less equity in their homes when the loans convert than when the loans were made – which is most of them.

Banks aren’t going to be lending generously if and when delinquencies rise. And if home prices stall out here or, heaven forbid, backslide, there’s no way there’s going to be a flood, or even a trickle, of mortgage money available.

The housing market may be facing another wall. That means home builders may not be putting up as many houses as they had hoped. Because housing makes up about 15% to 20% of GDP, a drop in housing starts puts home sales, construction, remodeling, and all the other businesses and consumption trails associated with housing in the line of fire.

That puts the entire economy is in the line of fire. And speaking of fire, the economy’s first-quarter growth – make that negative growth of -1% – is a fire.

That’s why we’re short a bunch of housing-related plays at my Short-Side Fortunes newsletter. We will be patient – our trades aren’t going to pop overnight – but when the roof comes down, our house will be rockin’.

Editor’s Note: To join Shah’s small circle of Short-Side Fortunes readers and learn how to use this trade for yourself, please click here.

Source : http://www.wallstreetinsightsandindictments.com/2014/06/beware-the-latest-mortgage-trap/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in