Did you happen to catch “60 Minutes” on Sunday? 

I watched the segment about foreclosures and realized that we are (at best) only half way through the nightmare!  Over the next two to five years the next round of disaster loans will be the Alt-As and the Option ARMS.  One speaker predicted that half the Option ARMS will go into default.

Figures bandied about on “60 Minutes” included the statistic that 8 million American homes will eventually go into default.  With the Alt-A and Option ARMS about to kick in about 10% of the housing stock in the U.S. is in some stage of default.

Things are bad all over.  I was talking with one of my tenants the other day and she just lost her job.  She has about 3 months of income available to pay the mortgage on the home she has in Illinois that she was never able to sell when she moved to accept a new job 18 months ago.  If she doesn’t land another job right away that home will be in default.

Many of us who are landlords are experiencing high default and heavy turnover on our rentals.  This is going to start washing out as higher defaults on commercial property.  The “60 Minute” report also predicted that commercial real estate will be hit with higher defaults next.

My mother has an Option ARM loan on a property in Detroit.  It has been readjusting for the past year. Now, the good news is the interest rate has gone down from 8.5% to 6% in a year.  However, she has never seen any reduction in her payments, despite the letter stating that the amount is coming down.  The payment that they said should be her new full mortgage and interest payment still comes out as the option 1 (less than interest only on the statements each month).  What they seem to be doing is adding an exhorbitant amount to the escrow each month to represent the difference between the advertised rate and what we are paying. They only catch up on that problem once per year when my mother gets a nice fat check from the mortgage company.  They AREN’T adding it to principal, that is for sure.  Seems to me this has to be deceptive, if not downright illegal.  I plan to take this up with the Michigan Attorney General’s Office.  In case you’re wondering, this is an EMC loan.  I get NO WHERE with them when I talk with them. Needless to say, I do not think much of EMC as a mortgage company.

“60 Minutes” said that there are even crazier loans coming down the pike.  Just when we thought that the industry was getting regulated, it appears that the industry invents a new way to get more and more people into financial trouble.

Liz Nichols