16 Sep Good Mortgages Gone Bad
Business Weekâ€™s John Tozzi points out another wave of problems on the horizon for Alt-A mortgage holders. Tozzi, in his article, Mortgage problems for the self-employed, says these loans â€œwere designed for people with good credit but who had problems documenting their income.â€ People like the self-employed, working people and business owners, who did not have a steady paycheck history to support a prime interest loan.
Alt-A loans were a step above the level of subprime loansoffered to the highest risk category of borrowers. But something went wrong between the design and the final product. Many Alt-A loans were written without any proof of income, to people who were not self-employed and were not employed at all.
Many Alt-A loans are due for a first reset in 2010 when the initial teaser low interest rate will adjust upward. Couple that with a slowing economy, and those small business owners may be facing a double whammy – higher mortgage payments during a period of declining income â€“ leading to foreclosure. Additionally, now that banks are squeamish about offering no document loans, those same borrowers, who so dearly need softer lending guidelines may be unable to find future financing without having hard income documentation.
Fiscal planning and a good old fashion reality check may help the self-employed find suitable options to ride out the financial storm. Now is the time to accumulate capital and pay off or avoid debt. Persons should evaluate their income stream and make choices now, including disposing of unnecessary or expensive assets, to avoid problems later.
Andy Miofsky, Esq.
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