Exotic or Toxic? New Mortgage Report

Posted by: Peter Coy on May 24, 2006

Check out a just-released report by the Consumer Federation of America that says low-income people are signing up for risky mortgages that could land them in big trouble.

Reader Comments

Tim

May 26, 2006 12:49 AM

As a small business and independant escrow firm co-owner I have a couple insights to offer.

From my front seat observation of this market and our office closing many purchase and refinance transactions, I think the lines are getting foggy as to which demographic is more at risk. Certainly low income people are at risk to predatory lending. Perhaps we should also include demographics regarding those who are prone to more 'risk taking' or spend well beyond their means.

There are a good handfull of people whom you would deem fairly well off that have debt-to-income ratios (net worth)that are far worse (in fact dismal) than borrowers with lesser income.

For example, in 2005, 71% of our entire purchase transaction closings we handled were 100% financed, most with ARM's, many with two to three year pre-payment penalties. Were 71 borrowers out of every 100 closings we handled considered low-income borrowers? We closed these deals with employees earning wages from many good employers--see below. Mind you, we are a small company, just a drop in the bucket of the real estate scene.

Tim Kane
Co-owner
Legacy Escrow Service, Inc.
Washington State

(Employer demographics: Boeing, Starbucks, Costco, US NAVY & other local military base staff, Fluke, Microsoft,Nordstrom,PACCAR, Weyerhaueser, T-Mobile, Adobe Systems, Real Networks, Getty Images, University of Washington staff, Zymogenetics, Bio-tech & Healthcare employers among others...)

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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