From Realtor Magazine Online, Daily Real Estate News February 25, 2009
About 9 percent of home buyers in 2007 borrowed an amount that was at least four times greater than their annual income, according to an analysis of lender data by USA Today.
Lenders don’t usually consider the size of the loan relative to total income, says Margot Saunders of the National Consumer Law Center, but that constituted a major mistake while writing an adjustable-rate loans where consumers can face sharp increases in monthly payments, she asserts. “It is like jumping off a bridge without knowing how high it is, and certainly without a parachute,” Saunders says.
Data from the Federal Financial Institutions Examination council shows that big loans were most common in East and West Coast cities. Mortgage Bankers Association Chief Economist Jay Brinkmann dismisses the analysis saying there is nothing inherently wrong with loans that are larger than a borrowers’ yearly income. In parts of the country where home prices spiked, ”that was what you had to pay to get into a house,” he says.
Source: USA Today, Brad Heath (02/25/2009)
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