The Mortgage Shocker
There are two ways that you can view getting a shock. There is the good kind where you get shocked when you get the news that you won the lottery or your significant other proposes. Then there are the shocks that make you feel like you swallowed a bowling ball. It feels like a punch to the gut and a certain shock that could knock you out with shock it brings is called Mortgage Payment Shock. Anytime "mortgage" and "shock" pop up in a sentence, you know that things are a little iffy. And you do not want this hassle of getting a shock from mortgage payments especially when paying of mortgages are a burden unto themselves already.
The incident of mortgage payment shock is usually associated but not limited to borrowers who are considered sub-prime. So that means that people who are not subprime borrowers can experience this as well. Plenty of those borrowers are middle-class people and especially those who are from California. These people for some reason took out very high-risk ARMs. There was a research the indicated that between 1998 and 2006, 2.4 million foreclosures were done on people and families. These people lost their homes because of foreclosures that were brought about by ARM mortgages. It might come as a surprise for you to know that these foreclosures happened way before the global economic crisis that caused so many people to be homeless.
It is the payment explosion that is behind this shock that you need to know about and also that the major problem here is that many if not nearly all of their mortgages were all based on the payment explosions. You must then know that most of the borrowers can not afford the increases in the payment that can be from 30% to 100%. You have to admit that these increases are very high and not affordable for most people.
There is a reason why the problem got as big and also uncontrollable is that these high risk loans were given the go-ahead by the lenders without considering all the loans that were actually going awry and not sticking to the stipulations that were given to them. Then they were all put into some mortgage backed securities which then got sold to other secondary markets.