For Immediate Release
June 21, 2006
Contact: Douglas Robinson, 202-220-2360; drobinson@nw.org
NeighborWorks® Organizations Prepare for Increase In Mortgage
Delinquency and Demand for Budget Counseling
National Training Conference Supports Helping as Many as One-in-Four
New Borrowers Facing Potential Mortgage Payment Shock
(Washington, D.C.)—NeighborWorks organizations operating in more than 4,400 communities are gearing up for an expected influx of homeowners seeking mortgage and budget counseling as rising interest rates, slowing home price appreciation and mortgage payment changes threaten to push many homeowners into delinquency, budget straits or both.
“Thousands of homebuyers over the past two years chose mortgages with adjustable rates and interest-only payment options,” said Ken Wade, CEO of NeighborWorks America. “Most of those borrowers will be fine when their loans reset at higher rates later this year, but a significant percentage of homeowners will be surprised at the increase in their monthly payments.”
To help its network of counseling and homeownership professionals prepare for the surge, NeighborWorks America is hosting an extensive training conference in Kansas City, Mo., June 26-30. The NeighborWorks Training Institute is an opportunity for professionals in the non-profit housing and consumer finance fields to sharpen their skills and learn the latest best practice techniques. But this year is especially important.
According to statistics from Inside Mortgage Finance, a mortgage industry digest of data and information, nearly $150 billion of the almost $670 billion of mortgages originated in the first quarter of 2006 were adjustable rate mortgages that didn’t require any payment of interest. And after increasing at a rapid pace for more than three years, home prices around the country—especially in higher cost areas— have slowed or even begun to decline.
“For many of the new homeowners who were just able to afford their homes with low-rate adjustable mortgages, when the rates on these mortgages begin to reset, they’re going to be in for significant payment shocks,” said Wade.
How significant? Consider the situation of a homeowner who used a one-year adjustable rate mortgage taken out in July 2005. According to data from Freddie Mac, the one-year ARM rate for July 2005 averaged 4.40 percent and a typical $150,000 principal and interest mortgage payment was $751. The maximum adjustment for many of these mortgages is two percent, pushing up the interest rate later this summer on the loan to 6.4 percent, and the mortgage payment to $938.
While some borrowers will be able to refinance their ARM into a new loan, even then the payment will be substantially higher. Long-term fixed rates are solidly above six percent, and even new one-year ARM rates have been above 5.6 percent, which could cost a homeowner at least $110 more per month. Moreover, the act of refinancing includes new closing costs, the amount of which may be prohibitive for many recent new homeowners.
“We know that as many as one-quarter of all borrowers chose interest-only mortgages, and are choosing not to pay the optional principal that these loans allow. Coupled with flat and even declining home values in some communities, borrowers who got into their homes with small downpayments may not have enough equity to enable refinancing,” explained Wade.
It’s these borrowers and others who want to learn how to better manage their mortgage debt and overall budget that counselors at NeighborWorks organizations will be better equipped to help after attending the five-day training conference.
Media who would like to receive credentials to attend and cover the Training Institute, please contact Douglas Robinson at drobinson@nw.org or 202-220-2360.
About NeighborWorks® America
NeighborWorks America provides financial support, technical assistance and training for communities across the nation, including the NeighborWorks network – a nationwide network of more than 240 community development organizations working in more than 4,400 urban, suburban and rural communities across America. These organizations engage in revitalization strategies that strengthen communities and transform lives. In the last five years alone, NeighborWorks organizations have generated more than $10 billion in reinvestment and helped more than 780,000 families of modest means purchase or improve their homes or secure safe, decent rental or mutual housing.
