33% of Seattle area loans were I/O or option ARM in 2006

[sniglet]

Over at Raincity someone mentioned that 33% of 2006 Seattle area loans were either interest only or option ARM. That kind of puts things in perspective. I have a strong suspicion that the vast majority of people who use these kinds of loans do so because they can't afford the property in the first place.

Imagine that: 33% of people getting mortgages in our area last year couldn't afford the homes they were buying. If the jobs in our region were so fabulous, why couldn't these folks have been able to make a good down-payment?

Just what will happen if apprecation stagnates, and a cash-out refi won't be possible to bail them out?

[SeattleMoose]

"I have a strong suspicion that the vast majority of people who use these kinds of loans do so because they can't afford the property in the first place. "

Or flippers who wanted the minimal payment for the 3 months they thought they would be holding the loan before selling it for double what they paid after putting in "faux granite counters" and applying "faux stainless steel (stick on)".

[carlislematthew]

"I have a strong suspicion that the vast majority of people who use these kinds of loans do so because they can't afford the property in the first place. "

That's the irony here. With IO loans, they "can" afford the houses. This is what the brokers tell them, and this is what the payment shows them. After all, your house will only increase and you'll gain equity by just waiting, and you don't need to actually pay down the loan. Then, when you retire in 30 years, your house will be worth billions and you'll have to move to Kentucky because all the other houses around you are also worth billions.

Loans are no longer funded on the basis of repaying them. For example, I know a case where a 60 year old RETIRED lady on social security is being advised to get a 30 year loan and cash out as much as possible. 30 years? She'll be dead half way through the loan!

In my case, I told the broker that I had a significant household income and wanted a 30 year fixed. He still recommended a 10 year IO loan to me. I'm sure the commission must be better on those loans, and he knows that using that loan I'm more likely to get a higher value house (cos I can afford it!!!) and that increases his commission again.

We live in such a short-term culture. People are unable and unwilling to think about what happens in 10 years once their IO period ends. "I'll just refinance!", they exclaim. So, you'll refinance into a 20 year loan? At what point will you actually PAY BACK THE MONEY THAT YOU OWE? I'm so old fashioned...