Avoid Mortgage Payment Shock
Getting a shock could be a good thing, if you get something good out of that shock. But what if you get a shock that far from curing you of hiccups makes you faint from all the unpleasantness that it brings? This is the kind of shock that we all dread and want to avoid. One shock that could make you break out in hives is the Mortgage Payment Shock. Three words that do not look too goo when used in one phrase since it seems to promise all sorts of unpleasant surprises that you want nothing to do with. Mortgage Payment Shock has always been associated with those subprime borrowers. But be aware that this is really far from the truth. A lot of borrowers who belong to the middle-class, especially borrowers from California, have managed to take out some risky ARMs over the recent years. There have been studies that were able to show that between the years 1998 until 2006, there were some 2.4 million people and families that have managed to lose their houses and homes to foreclosures and also because of ARM mortgages. These were the years before the current crisis; you will be surprised to know.
You need to understand the payment explosion behind the shock and the main problem is that most, if not all of the mortgages were built in payment explosions. It is a simple fact that a lot of the borrowers have no way of affording payment increases that are between thirty percent and one hundred percent. That is just madness really and not possible.
The reason that the problem got so big and uncontrollable is that all these risky loans were approved by lenders and they did not give a momentâ€™s though to all the loans actually going bad and not at all to plan. These loans were then pooled into mortgage backed securities and were then sold to secondary markets. Through their lifetimes, mortgages actually go through a lot of hands. On the other end of the spectrum, the people who got stuck with the ARM mortgages are left to face all the payment shocks.