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Homebuyers seek riskier loans with echoes of 2008 housing crisis

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WASHINGTON — Homebuyers who feel financially squeezed by rising interest rates are being targeted by real estate agents and mortgage brokers for potentially riskier deals, similar to those seen before the 2008 financial crisis. Mortgages of the type are increasingly directed, causing concern among some consumer advocates and industry analysts.

Among the loans offered to homebuyers are so-called variable rate mortgages. 2-on-1 buydownartificially lower rates for the first two years, and interest only mortgage Interviews with real estate experts, industry data, and a review of marketing materials from realtors and mortgage brokers show that borrowers pay lower monthly payments for several years by paying only interest on loans. increase.

In all cases, borrowers may find their monthly payments increased by several hundred dollars after the introductory period. This is the dynamic we saw leading up to the last housing market crash that left millions of borrowers homeless due to predatory lending. Some major financial institutions have been forced out of business.

Industry experts say they don’t believe the US will repeat the last mortgage crisis. rule Introduced since then, higher standards for who is eligible for a mortgage. They also note that variable rate mortgages and other atypical mortgages account for a much smaller share of total mortgages than was seen during the 2008 crash.

But consumer advocates and people close to the real estate industry warn that homebuyers could still be in precarious financial condition if mortgage rates reset and monthly payments rise. increase.

“We are watching with concern the growing interest in these alternative mortgage products,” said Sarah Mancini, staff attorney for the National Consumer Law. “There is a lot to do with that, and interest rates could go up.” center. “The scary thing about this market is that people are trying so hard to open the door, and that can put individuals in a very difficult place.”

Mancini and other consumer advocates say economists and business leaders say the trend toward riskier mortgages is of particular concern given the overall economic uncertainty. business Unemployment rises, interest rates rise keep going uphome sales rejectedThese dynamics could mean that more people will lose their jobs and be unable to refinance their homes at lower interest rates or sell them if needed.

“If interest rates start going up and wages don’t go up, you can support the 8-ball. That’s really the discontinuity here,” said a senior fellow at the Consumer Federation of America who ran the business from 1995 to 2006. Fannie Mae. But more often than not, in situations like this, people find themselves wanting to plan and do their best. This is not a good recipe for success. ”

The standard 30-year fixed-rate mortgage rate has doubled since the beginning of the year.

Estimates from investment bank Goldman Sachs and rating agencies say home prices have started to fall and are expected to continue, but prices should remain well above pre-pandemic levels through 2023. . fitch.

Nick Holman, director of financial planning at robo-advisor Betterment, said he’s been hearing a growing sense of urgency from clients about moving quickly to buy a home. As interest rates rise, more and more people are asking about alternatives to a 30-year fixed-rate mortgage.

“Now they’re like, ‘Oh, rates are going to go up. I want to jump on it, I don’t want to miss it again,'” Mr. Holman said. It’s the urgency, not the bystanders to see what happens to the price. ”

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As interest rates rise, so does the number of variable rate mortgages. This can lower your interest rate by 1-2 percentage points and save you hundreds of dollars from your monthly payments. It then resets to the market rate after 3-10 years. These mortgages now make up about 12% of all mortgages, up from about 3% a year ago, according to Mortgage Bankers Association data.

Still, this is a much smaller share than during the financial crisis when it accounted for nearly a third of all mortgages. Regulations enacted after the financial crisis require lenders to determine their ability to repay these types of loans at the maximum monthly repayment amount during the first five years and to provide clear disclosure and notice of any increase in payments. You must make a sincere and sincere effort. .

“People shouldn’t be given the same level of high-volume, high-risk lending that could ultimately lead them to default,” said James Gaines, a research economist at the Texas Real Estate Research Center at Texas A&M University. rice field. “Lenders, regulators and the law have all conspired not to allow this type of situation to occur.”

Linda McCoy, a mortgage broker in Alabama and president of the National Association of Mortgage Brokers, said in working with clients struggling to cope with higher interest rates that she and others were more traditional. said they are seeing a move toward more aggressive mortgages.

Some of the more common non-traditional loan programs she sees require little or no down payment, allowing buyers to use the down payment cash to pay off their debts and access larger mortgages. She’s also seen the resurgence of the 2-to-1 buy-down, where buyers, sellers or lenders pay up front to reduce interest rates by two percentage points in the first year and one point in the second.

This is an incentive that realtors advertise in dozens of Facebook posts. Youtube When tick tock, especially to sellers who are resistant to price cuts. In marketing materials, mortgage brokers often suggest that the buyer can refinance after his two years, suggesting interest rates will drop in the near future.

But it can be a financial trap for some buyers, lured by lower payments and believing they can earn more or refinance before the end of the two-year term, legal staff said. One Mancini said. National Center for Consumer Law.

But U.S. regulators are confident that the 2008 housing crash won’t be repeated given the regulations that have been in place since 2008, and so far it has been difficult for lenders to provide mortgages to whom. He said he didn’t see it as loosening the standards for what it is. Mark McArdle, his director of the Home Loan Markets Assistant for the Consumer Financial Protection Agency, said:

“There’s not a lot of room to do the risky stuff that happened in 2006. When we sold it to investors, they didn’t even know what they were buying,” McArdle says.

Still, regulators are aware of changing dynamics in the housing and mortgage industry and are watching them closely, McArdle said. Banks and mortgage providers have also said they are taking a new level of caution this time around as they try to keep their businesses afloat amid slowing home sales.

But even with safety nets in place, consumers need to be aware of the risks they’re taking and the assumptions they make about what the future holds, industry experts say.

“You need to sit down and take a hard, rational, sober assessment of your situation and act accordingly,” says Gaines, an economist at Texas A&M University. Acknowledge that it is and take a bet on it.”

This article was originally published on NBCNews.com

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