Foreclosures increase on high-risk mortgages

If you've been waiting to buy rental income property, your time may be coming. Foreclosures on high risk mortgages are on the rise. Some experts say that once the interest rate hits 7.25%, investors will be able to move in and buy buy buy! The high risk mortgages are the ones that are advertised as allowing you to buy a $300,000 home for as little as $600 a month. The problem is, your payment are going to the interest only, which is variable and once the interest rates go up and the time comes when you have to start paying on the interest and principal, then the financial squeeze begins. Maybe there's a market for buying the high risk mortgage houses, and leasing the house back to the people who can't afford the payments. This would save them from bankruptcy and at least they wouldn't have to pack up, put their belongings in storage and go live with relatives. However, I don't think they'd be too thrilled to continue to pay the same monthly amount, with the money going to an investor. Well, the money was going to the bank with their interest only loan, so maybe it wouldn't matter.

Via the Boston Globe

Foreclosures increase on high-risk mortgages - Boston.com: "Foreclosures increase on high-risk mortgages

March 5, 2006

PROVIDENCE, R.I. --More Rhode Islanders losing their homes as the number of foreclosures on high-risk mortgages increases.

Mortgage companies give people with less-than-perfect credit subprime loans that carry higher-than-average interest rates.

Rhode Island has the largest portion of subprime loans in the nation. More than one in four mortgages issued to Rhode Islanders in 2003 carried terms that are considered subprime.

Now, more of those mortgages are ending in foreclosure, according to LoanPerformance, a San Francisco firm that analyzes mortgage data. The foreclosure rate on subprime loans jumped 0.41 percent in the third-quarter last year -- the largest increase in the nation.

Economists and housing experts say the increase is partly due to a slow down in the housing market. When home prices were rising fast, people could take out home equity loans or sell their houses at a profit when they had trouble paying their bills.

They are less able to do so now.

John and Nicole Pilozzi of Cranston know this from firsthand experience. John Pilozzi is a produce manager at Stop & Shop, while Nicole Pilozzi wraps meat at her father's deli. Together, they earn about $69,000 a year.

They bought their three-bedroom home in Cranston in April 2000 for $131,000. Their $104,800 mortgage carried a 9.35 percent adjustable interest rate -- nearly 3 percent higher than average.

About 18 months later, interest rates fell, and the couple refinanced, taking out a $123,000 loan at an adjustable rate of 8.57 percent.

By the following summer, they had accumulated car loans and mounting credit card bills. In June 2002, the Pilozzis took out a home equity loan of $25,000.

They were not alone. About one in four dollars that home owners took out in home equity loans at that time went to pay off other debts, according to the Federal Reserve.

The Pilozzis refinanced for a third time in February 2004. They rolled their home equity loan into a new $187,000 mortgage with an initial interest rate of 7.08 percent.

The $1,600 to $1,700 per month mortgage and insurance payments were crushing.

They began missing payments when John was transferred to a store in Massachusetts. Gas cost more than $120 a week, he said.

In January, the Pilozzis' home was sold at a foreclosure auction.

'I make decent money,' John Pilozzi said. But, 'I just couldn't do it.'"