Fixed Rate Mortgages under 2.0%?

January 23rd, 2009 | Tags: , ,

I was reading in the AARP Bulletin this month a story about how bankruptcy judges should be able to cram down loans. The most interesting part of the article was an explanation from a non-profit:

Jed Davis, chief executive officer of Neighborhood Partnership Housing Services in Ontario, Calif.,a nonprofit operating in a region hit hard by the national foreclosure crisis, said he sees many people living in $300,000 homes who used to pay less than $1,000 a month on their mortgage.

People seem to be missing the point that banks were taking a huge risk in making these loans. This risk was offset by the resetting of the interest rate at a later date. Do you really expect to buy a $300,000 home at $1,000 a month? If the rate was fixed, that equates to 1.25%, which is just unsustainable. Many people forgot about common sense and got way in over their heads.

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