Buy a House, but Don't Pay the Mortgage!

A new reverse mortgage option, HECM (Home Equity Conversion Mortgage, the FHA term for a reverse mortgage), has been unveiled that may help senior citizens age 62 or older buy a house or downsize from a current home in the Bay Area. Reverse mortgages have been around for quite some time. However, the concept of their use to purchase a home is new.

In the past a reverse mortgage was a way for seniors to access the equity they had built up in their primary residence. The concept is simple; a homeowner receives a check (in lump sum or multiple payments) from the bank against the existing equity in his/her home and the homeowner's obligation to repay the loan is deferred until the owner dies or the home is sold.

The new version of the HECM program allows buyers to use a reverse mortgage as a plan to permanently finance the qualified buyers new home. Through the program, the qualified homeowner may live "mortgage free" and only be responsible for property taxes, insurance and maintenance costs for as long as they live in the home. Beyond living mortgage free, additional financial benefits may be found by freeing a retired homeowner's equity:

The purchase program, in effect, doubles the purchasing power of eligible buyers, several brokers said. Under the program, a couple with a $1,800 monthly payment on a home in which they have $250,000 in equity could sell the house, use $150,000 of their equity to buy a $300,000 condo and never make another mortgage payment.

They would then have $100,000 in cash that could be used for any purpose, such as supplementing their retirement savings or pension income.

Here are few of the fine points:

• Buyers need to be at least 62 years old. The older the borrower, the greater the amount of the home price that can be financed.
• The property being purchased must be a principal residence and owner-occupied.
• Homes can appraise at up to $625,500.
• Buyers need to put up a substantial down payment (often 40% or more) to create the instant "equity". The size of the down payment varies depending on the age of the buyer and the interest rate of the loan.
• Reverse mortgage costs and fees can be substantially higher than for conventional loans.
• Buyers must pay 2 percent of the property's appraised value - up to the maximum value of $625,500 - as a premium for federal mortgage insurance.

Resource: New reverse mortgage opens options for seniors, by Robert Hollis, Special to the Chronicle.

Get an Interest Free Home Loan from Uncle Sam

SFGate 8/3/08, How Home Purchase Federal Tax Credit Works:

(08-03) 04:00 PDT Washington -- Anybody who's been sitting on the sidelines hesitant to jump into real estate until conditions settle down should know these dates: April 9, 2008, through June 30, 2009.

They mark the eligibility time to qualify for the home purchase tax credit created by the massive housing bill approved by Congress. If you have not owned a house during the past three years - or are considering buying your first home - and can go to closing before the end of next June, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file taxes as a single person).

In order to stimulate the national housing market, Congress is offering this incentive to encourage buyers to buy before the June 2009 deadline. It is money you will need to pay back. Still, time is money and since you can use it now and pay it back in the future without any interest or fees; there is real value to the credit.

At its core, the new tax credit functions very much like an interest-free loan for up to $7,500. You pay the principal back in increments over time, but there's no interest charge to you.

Rob Dietz, an economist for the National Association of Home Builders, says the new credit not only will pull first-time buyers into the market, but also have a powerful multiplier effect, as thousands of sellers of these credit-assisted houses go out and purchase replacement homes for themselves - extending the impact of the credit into the move-up segment.

How do you claim the credit? If you pass the eligibility tests and buy before June 30, you simply request the credit on your tax return for either 2008 or 2009, which will be modified for that purpose. Even if you purchase in 2009, you can take the credit against your 2008 taxes by filing an amended return.

For an overview of the credit see the SFGate article (click here), or go to www.federalhousingtaxcredit.com.

NPR: The Giant Pool of Money

I'm a sucker for episodes of This American Life. No matter what the subject, the program always seems to lure me in with its combination of sentimental narration and poignant documentary. Episode 355 isn't merely entertaining, it manages to educate and encapsulate this whole economic/mortgage crisis. I recommend it to anyone interested in how we got here.

Here are the program notes:

355: The Giant Pool of Money (click here to be directed to the site, then click on the full episode link on the left.)

A special program about the housing crisis produced in a special collaboration with NPR news. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? It all comes back to the Giant Pool of Money.

A shorter companion version of this story appeared on NPR's "All Things Considered."

Prologue.

Ira talks with NPR business and economics correspondent about two gatherings he attended. One at the Ritz Carlton and one at a community college in Brooklyn. The first was an awards dinner for finance professionals who created the mortgage based financial instruments that nearly brought down the global economic system. The other was a non-profit conference for people facing foreclosure. Ira explains that today's show lays out how the finance guys and the people facing foreclosure are connected by a chain of middlemen, and that together, they all brought about the current housing and credit crisis. (4 minutes)

Act One.

This American Life producer Alex Blumberg teams up with NPR's Adam Davidson for the entire hour to tell the story - the surprisingly entertaining story - of how the US got itself into a housing crisis. They talk to people who were actually working in the housing, banking, finance and mortgage industries, about what they thought during the boom times, and why the bust happened. And they explain that a lot of it has to do with the giant global pool of money. (31 minutes)

Song: "Hard Times," The Sex-o-Rama Soundtrack


Act Two.

Alex and Adam's story continues. (23 minutes)

Song: "Time Machine," Grand Funk Railroad

Conforming Loan Limit to be Raised

From Inman Real Estate News:

Bush administration officials renewed their calls for Congress to pass legislation tightening oversight of Fannie Mae and Freddie Mac Thursday, as Congress signed off on a plan to allow the companies to guarantee or purchase loans that exceed the $417,000 loan limit.

Senate Democrats on Thursday abandoned an attempt at a broad expansion of a $150 billion economic stimulus bill backed by the Bush administration and approved by the House last month.

In an 81-16 vote, the Senate sent a slightly modified version of the bill back to the House, which promptly voted 380-34 to put the bill on the president's desk.

The White House issued a statement saying President Bush could support the Senate's more limited amendments, which expand the pool of those eligible for tax rebate checks to include $300 payments to Social Security recipients and disabled veterans.

Bush said the bill "would quickly put money into the hands of the American people and provide our economy the boost it needs" and that he will sign it into law.

The economic stimulus package includes a provision that will temporarily raise the conforming loan limit to allow Fannie and Freddie to purchase or guarantee many jumbo mortgages originated between July 1, 2007, and Dec. 31, 2008.

The increase, to as much as $729,750 in high-cost areas, will also apply to Federal Housing Administration loan guarantee programs. Because the increase will be capped at 125 percent of the median home price for an area, the conforming loan limit will remain at $417,000 in markets where the median home price is $333,600 or less.

Although the increase will expire at the end of the year, industry groups like the National Association of Realtors have urged Congress to mandate a permanent increase in the conforming loan limit in passing legislation to increase oversight of Fannie and Freddie.

Permanent changes to FHA loan limits are being addressed in bills that would also lower minimum down-payment requirements and expand the pool of eligible borrowers by using risk-based pricing. Both the House and Senate have passed FHA modernization bills, but differences between them are being ironed out (see Inman News story).

This is wonderful news for our area, where the $417,000 loan limit didn't reflect our median home price. This will improve Bay Area housing affordability because conforming loans carry less risk to lenders and result in lower interest rates to consumers.

Survey of Bay Area Counties - Median Prices - Fourth Quarter 2007

     County    Single-Family Detached Homes  Single-Family Attached Homes
                 Q407       Q406     % Change    Q407     Q406   % Change

 Alameda          $638,569    $635,101    +1     $376,901  $415,572     -9
 Contra Costa     $597,736    $639,396    -7     $305,779  $347,796    -12
 Marin          $1,045,331    $967,286    +8     $663,934  $546,475    +22
 Napa             $604,500    $610,000    -1     $399,999  $425,000     -6
 San Francisco  $1,080,335    $970,548   +11     $799,559  $744,420     +7
 San Mateo      $1,133,184    $998,199   +14     $499,408  $496,812     +1
 Santa Clara      $942,782    $853,559   +11     $487,846  $438,207    +11
 Solano           $384,626    $457,415   -16     $234,778  $293,420    -20
 Sonoma           $521,441    $563,023    -7     $320,242  $349,248     -8
 Bay Area         $785,058    $735,295    +7     $527,859  $490,554     +8
source: Reuters

The Fed Works to Motivate Buyers off the Fence

Fed slashes key rate to 3.5%
Citing weakening economic outlook, Federal Reserve makes biggest cut in nearly 24 years - three quarters of a point.

I have notice that my phone has really been ringing a lot, particularly considering it is the first month of a new year. According to CNNMoney, Morgage applications have also been on the rise.

WASHINGTON (AP) -- Mortgage application volume rose 8.3 percent during the week ending Jan. 18, according to the trade group Mortgage Bankers Association's weekly application survey.

The rise in mortgage applications is largely due to refinancing. The favorable rates which have been enticing current homeowners will likely be spurred even lower by the latest action of the Fed. This is likely to lure more borrowers into the home buying market.

In conversations I have had recently with buyers, the benefits of home-ownership often out-weigh concerns of a recession. From the perspective of well-positioned buyers-- as they consider the importance of all of their monetary decisions-- home ownership still tops their financial goals. For buyers who plan to stay in their new house at least five to seven years; the combination of good mortgage rates and optimism regarding the future value of Bay Area property makes owning a home a reasonable investment. "Either way we need a roof over our head. Lower interest rates make the monthly payments on a home more affordable," states one home buyer. There are also the intangible benefits of owning your own spot on the planet. You can change anything you want and (if you make your loan payments) no one will ask you to leave. If the recession continues, more may chose beans and rice over caviar; yet, many will also make the leap toward home ownership.

Refinance or New Purchase: What You Need Today to Get a Good Loan

Mortgage applications rise as rates tumble.

Mortgage rates have fallen with the expectation that the Federal Reserve will lower the federal funds rate when they meet on September 18th. This has increased the number of applicants looking to refinance and apply for new purchase loans. Rates are good, but qualifying for the best rate is more difficult during the current mortgage crunch. Banks are understandably a bit shell shocked from the recent melt-down in the sub-prime market. This will result in a pendulum effect and a conservative approach to evaluating borrowers. Proceeding with caution is a good thing. Let's learn from past mistakes and move forward. For those looking to take advantage of the good rates, here is what it takes to impress a lender:

• A Good FICO Score. Improve yours today with simple tips from our past post: Fix Your Credit...


• A Sizable Down Payment. Most loans now require at least 10 percent down, and lenders prefer 20 percent down.


• A Reputable Mortgage Broker. A good lender can increase your odds. Walking into your local bank branch may seem like an obvious approach to securing a home loan. However, your bank will have limited products available at any given time. Conversely, a good mortgage broker can shop your assets through multiple sources and help find the best program available for your situation. Reputation is important because you don't want to be disappointed if promises are not kept. Call your real estate agent for a reliable recommendation.


• Verifiable Income. Lenders would like to see at least two years of documented income. Self-employed individuals can still get financing, but rates may be higher.
  


• Patience. As banks take a more critical look at their borrowers, it may take longer for approval. Gather all the paperwork, and then realize that you may have to wait.

• A Backup Plan. Some well-qualified buyers were disappointed recently when their lender unexpectedly pulled the plug.
  

• A Dependable Real Estate Agent. A good real estate agent can help coordinate the pieces and keep your escrow on track.

Research source for this article: Dow Jones Business News (09/03/07)

Recession or Rally? The Feds Lower Discount Rate

Aug 10 (NYT) -- Saying it now feels that the recent disorder in financial markets has raised the risk of an economic downturn, the Federal Reserve today approved a half-percentage point cut in its discount rate on loans to banks....

The upheaval in the credit markets have confronted Ben S. Bernanke, the Fed chairman, with the first crisis of his 18-month tenure. In recent weeks, the Fed has intervened to support the markets by lending in the money markets against mortgage securities and Treasuries. It did so again this morning, by lending $6 billion against mortgage securities. Over all, since Aug. 9, the Fed has injected $94 billion into the financial system by lending in the open market.

The Federal Reserve is scrambling to address the mortgage crisis in an effort to stabilize the US economy. A reduction of the discount rate will specifically target banks that are having short-term financial difficulty (like, Countrywide.) This rate does not have a direct impact on consumers, so we will not see an immediate drop in interest rates. It does however free up financing making loans easier to obtain.

The discount rate is the one the Federal Reserve charges qualified lenders, mainly banks, for temporary loans. Lowering interest rates encourages banks to lend more money to mortgage borrowers.

That in turn could make it easier for home buyers, especially those using big-ticket loans called Jumbos, to get financing.

Lending restrictions will remain tight and sub-prime loans difficult to obtain. The ultimate question remains: Will the Feds efforts be enough to bolster consumer confidence? Information may arrive instantly, but insight takes longer. Fortunately, our traditional/seasonal August slowdown will give us an opportunity to sit back and watch the chips fall. Hopefully, the market will announce itself come September.

Help is on the Way: Central Banks Rally to Stabalize the Credit Market

Aug. 10 (Bloomberg) -- Central banks in the U.S., Europe, Japan and Australia added at least $131.3 billion to the banking system in an attempt to avert a crisis of confidence in global credit markets

More than just a housing crisis, the sub-prime fallout threatened worldwide economies as confidence faltered and stock market funds plummeted. Monday mortgage lenders seemed to be over-reacting as many companies stopped taking new applications and others failed to honor existing commitments. Major lending sources recoiled in fear of uncertain futures. Now the central banks are uniting to inject money back into the banking system. This major act is designed to help stabilize the market and soften the risk for mortgage-backed debt.

In the U.S., the federal funds rate opened at 6 percent, the highest in six years. The rate fell to 5.25 percent after the New York Fed bought $19 billion of mortgage-backed securities and then followed up with $16 billion of funds in a second operation.

'Unlimited' Ability

"The Fed has almost unlimited ability to supply liquidity if they feel that is appropriate,'' Rivlin said. She noted that it was "symbolic'' that the New York Fed's first operation today involved mortgage-backed debt -- the type of securities that investors are unloading.

First Time Home Buyers Struggle to Enter the Market

This is a follow up to my last post. As previously mentioned, the meltdown in the subprime market has not pulled the doormat out from under Bay Area home owners. Still this economic phenomenon has not left the real estate market entirely unscathed. We had hoped that a leveling of the market would turn a greater percentage of housing dreams into realities. Unfortunately for some first-time home buyers, the carrot remains just out of reach. USA Today reports:

Rising mortgage rates have eroded almost all the financial relief that buyers might have derived from the slight decline in prices in most areas. On top of that, lenders are now demanding that customers produce larger down payments, more cash reserves in the bank, higher credit scores and less debt — all of which many first-time buyers lack, especially in high-cost states such as California, New York and Florida.

As we look into our crystal ball, we can't help but be concerned for our infrastructure. If the trend continues, how will our teachers, police officers, and firefighters afford to live here? The Bay Area housing market has held strong due to a strong and diverse economy, the area's intrinsic desirability, and limited sprawl. But, what will happen if the people who service the needs of our community can no longer afford to live here?

Given increased housing costs and gentrification, how do you see our East Bay culture changing? (Click on text to leave your comment.)

The Subprime Crisis

Subprime lending, also called "B-Paper", "near-prime" or "second chance" lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high-interest rates, bad credit history, and murky financial situations often associated with subprime applicants. A subprime loan is one that is offered at a rate higher than A-paper loans due to the increased risk.

Some of you may be wondering, why we haven't talked much about the "subprime lending crisis." We have noted that buyers have been seeking alternative financing to compensate for decreased afford ability. Some of these buyers have turned to suprime loans in order to qualify for their home purchase. Subprime loans do help some buyers who would otherwise not be able to enter the market. The downside is that the flexibility has encouraged misuse by some predatory lenders. As a result, we have seen an increased number of foreclosures and short sales. This fact has prompted us to caution buyers about their lending options (See the post titled, Would You Risk an Extreme Mortgage.) However, the impact on housing prices has not been great enough to affect our forecast for the general East Bay real estate market.

An independent real estate market forecaster, Housing Predictor, reported the following:

Hundreds and perhaps thousands of local real estate markets scattered throughout the U.S. are insulated from the sub-prime loan crisis and as a result are not suffering from fall out of the sub-prime fiasco, according to the latest Housing Predictor study.

Beginning in late 2006, subprime mortgage lenders began filing bankruptcy. This meltdown prompted some economists to fear a fallout similar to the U.S. Savings and Loan Fraud Crisis of the late 1980's. Although our market has experienced a healthy leveling, this gloomy prediction is not being realized. The subprime crisis seems to have been limited to less affluent areas with less healthy local economies.

Weighing the Odds As a Bay Area Home Buyer

Purchasing a home is a balancing act. Buyers have to weigh fears about a changing market against sometimes unrealistic seller expectations. Add to that the tight-rope multiple offer situation; that fine line between the safety net of buyer protections and the free-fall of incentives that prompt sellers to accept an offer. In a perfect world we want buyers to have the benefit of all applicable contingencies. However, in this marketplace it sometimes behooves a buyer to present a clean offer. A "clean offer" is an offer that is well-written and often contingency-free.

Incorporating contingencies into a purchase contract may seem like the best way to protect buyers' best interests. Not true, if these complexities preclude them from buying a house. Even a contingent offer reaches a point when the contingencies expire. In any market, it is impossible for your agent to keep you safe from all liability. However, a good agent can give you a deeper understanding of the nuances associated with the risk and grant you the clarity to overcome peril.

A financing contingency is an example of a manageable risk. A loan contingency buffers the risks inherent to the loan application process. Why would buyers write an offer without a loan contingency? The best answer is because; they fully understand the risk, they feel empowered to manage that risk, and they can improve the chance their offer will be accepted.

Most buyers are pre-approved with their lender when making an offer. A well-qualified buyer's pre-approval letter will have three outstanding lender conditions. If the conditions are not met, the buyer will not get the loan. Here's what's at stake:

1. The lender must approve the contract. (You can limit this risk by using an approved CAR form and having an expert help you draft your offer.)
   
2. The lender will require an ALTA policy of title insurance. This is the title insurance that protects the lenders interest in the property against any liens or encumbrances unknown to the lender. (This one is easy, the approved form contains language which incorporates CLTA and ALTA policy into the agreement.)
   
3. The lender will need to approve of the properties value in respect to the loan amount through a bank ordered appraisal. This is the doosie. If the house doesn't appraise, you don't get the loan. (Believe it or not, this last risk is also manageable. In fact, the lender is not even concerned wether the house appraises at your contracted purchase price. Lenders do not care if you are not getting your money's worth. They only care that property's value (their collateral) is strong enough to justify the loan amount. To the primary lender this works out to roughly the loan amount plus 20%.)

We have not seen many issues with appraisals, but this could change as the market fluxes. At any rate, it is safe to assume that every house will appraise at some value. Based on your pre-approval, your liability -should the home not fully appraise- is not the entire contract price, but rather the difference between the price you promised the seller and the appraised value the lender accepts. A buyer can manage this risk and successfully avoid breaching the contract with the seller.

• First, research comparable sales with your Realtor. We do care that you get your money's worth. Your agent can and should help you become a savvy consumer well before your contract is accepted. Then, if the appraisal falls short, your agent can advocate on your behalf by providing the appraiser with the comparable sales.
  
• Next, check the strength of your own pocketbook. Do you have any resources to bridge the gap between the appraised value and the contract amount? If the house does not appraise, a home buyer can provide the additional funds necessary and complete the transaction. Similarly, if you have a large down-payment (greater than 20%) you can more confidently waive your financing contingency, because the lender is more likely to find the desired collateral.
  
• Last of all, your mortgage broker can be a great resource. They can sometimes save the day by finding a secondary lender who is willing to loan you the additional funds required.

Each buyer is unique. Each house represents new circumstances.

"We think in generalities, but we live in detail." These suggestions are not universally applicable. They are listed to illustrate how your real estate agent can help manage your risks by brainstorming the available options. We do not believe in advising our clients to act on what is "customary" for our marketplace. We do not follow the crowd just because that is the current trend. Rather, it is our objective to serve our clients well. To think outside the box -and in it, when necessary or prudent. Dialog is essential in assessing the needs of the individual in relation to the virtue of our professional experience.

California Real Estate: Kai Ryssdal interview

Would You Risk an "Extreme Mortgage?"

We recently met with new buyers to discuss the process of buying their first home. Since the first step in today's market is always getting pre-approval for a home loan, we spent a lot of time on the subject. With our advice and recommendations, these buyers were already pre-approved by the time of our face-to-face meeting. Although their credit and finances are strong, they were concerned with the loan broker's recommendation to consider an interest-only loan. With housing prices on the rise, loan products have gotten creative to meet the demand for more affordable payment structures. With a myriad of options out there, real estate agents can not be experts in the area of home financing and do not have access to all the answers to suit each individual buyer's needs. I am not an expert (although, I can recommend one.) I do, however, have first hand experience in the marketplace and can put my finger on two conflicting truths:

1.) A gamble on financing your biggest purchase is not worth the risk of foreclosure or a short sale. Short Sales and foreclosures are losing propositions and should be avoided at all cost. A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed. Sometimes the debt in not "forgiven," but rather the difference is paid through a personal loan or alternative collateral.

2.) Home ownership is an admirable goal which can lead to increased financial security making some risk worthwhile. See MSN Money's article Why its smarter to buy than rent.

Reconciling the above concepts is a tasks best left to the experts. Real Estate agents can help you understand factors affecting the value of a particular property. Similarly, a loan broker can help you grapple with the value of a particular financial package. Today a loan broker sent me this insightful newsletter:

(excerpt From Cohns Loans Financial Newsletter dated 6/29/07)

As housing prices rise on the coasts -- $1,000 a day in some places -- buyers are taking on outsized mortgages and outsized risks. With the median home price in the Golden State nearing a half-million dollars, it's no wonder that fewer than 1 in 5 Californians can afford to buy a home. But plenty of people are snapping up high-priced houses anyway, on both East and West coasts, thanks to a burgeoning number of nontraditional mortgage loans. Can't afford a $100,000 down payment on a half-million-dollar home? Get a separate loan at a higher rate and borrow the money. Think you'll be richer down the line? Pay just the interest on your loan for a few years. Scared of high monthly payments? Get an adjustable interest rate that will stay low, at least for a while. It's a far cry from the days when 20% down payments and 30-year fixed-rate mortgages were the norm.

Borrowers on a precipice
But not everybody is so optimistic. A small band of skeptics is warning that homeowners are setting themselves up for a financial fall. If interest rates go up and home prices dip, owners may be forced to sell their homes at a big loss, some experts warn. "I'm nervous about it," says Elaine Worzala, professor of real estate at the University of San Diego. "I do worry about the borrowers in markets such as this one, where homes are so expensive." Her cautions are mostly ignored. To many aspiring homeowners, the housing market is issuing a clarion call they can't resist. In some parts of California, everyone seems to know someone whose home has skyrocketed $50,000 or even $100,000 in value in just the last two years or so.

A rush to buy, now or never
Although there are signs that local real-estate markets are cooling, "people act like we're going to run out of homes -- if they don't buy now they'll be left out forever," says Dan Ruiz, a mortgage broker who specializes in assisting Latino buyers in southern California. Because many of his clients can't afford to pay tens of thousands for a down payment, nearly all borrow the money, Ruiz says. And no wonder. In popular "80-20" or "100% financing" loans, potential homeowners borrow 80% of the purchase price of a home at one rate and the other 20% at a higher rate. Down payments used to be virtually mandatory "because the banks wanted you to have money in the investment to protect themselves," says Worzala. But now, the complex world of mortgage securities allows more flexibility.

Steeper risk in 'interest-only' mortgages
Adding to potential risk, buyers in California and elsewhere are turning to "interest-only" loans. By paying down only their interest for a few years, they keep initial payments low. Variable-interest-rate loans also woo potential home buyers. In many "hybrid" loans, the interest rates are fixed for the first few years, then can go up in the future, although the amount of increases is typically limited. For example, a homeowner might pay a fixed 3% interest for the first few years, with future increases limited to two percentage points a year or six points overall. The interest rate in this case, therefore, would never go above 9%. Sound reasonable? Lyndon Garcia thinks so. He had his eye on a $355,000 fixer-upper in the Los Angeles suburb of Whittier, but he didn't make enough as an environmental project manager to afford a $70,000 down payment. An 80-20 loan with an adjustable rate and interest-only payments was just the ticket. "There are so many positives to it," Garcia says. "Overall, it's an excellent plan. It helps the little guy." At least for now. But when interest rates go up, increasing monthly payments under adjustable rate mortgages? Combined with lower home prices -- something experts have been predicting in California for months, if not years -- they spell disaster. "A lot of people are already spending 50% of their income on their mortgage payment," says Worzala, the real-estate professor. "If the interest rates go up, they're all of a sudden very cash-poor, putting themselves in a position where they have to default on their loan and lose their house." Borrowers will be in especially bad straits if they haven't begun paying down the principal on their loans instead of the interest. "What's the incentive of staying if you have no equity?" Ruiz asks. But to new homeowners like Garcia, who bought his home with the help of Ruiz, the risk is worth it. Thrilled about his new house, he thinks his complicated mortgage loans are a "win-win."

One should consult with a qualified mortgage professional prior to implementing any mortgage strategies.

CohnsLoans is a full-service mortgage brokerage approved with numerous lending sources throughout the state. CohnsLoans provides conventional, nonconforming, jumbo, FHA and VA loans. We assist customers with great credit, bad credit, and no credit. CohnsLoans can also assist individuals who are self-employed and require either full documentation and no documentation loans. We can assist individuals and professionals with their financing needs whether buying, selling, or refinancing real estate. If we can be of assistance, please email us at newsletter@cohnsloans.com or call us at 510-528-3400.