The
housing boom was fueled, in part, by the proliferation of adjustable
rate mortgages (ARMs), which offered low interest rates -- which
could rise, if the Fed decides to raise rates. That is exactly what has been
happening, and now borrowers are facing significantly higher monthly
costs. In fact, one out of four mortgages is an ARM. Some borrowers who
have been paying 4 percent interest on their loans are now facing 7 percent. It can
be a big difference.
For example, a 15-year fixed-rate $150,000 loan at 4 percent would
cost you just under $1,110 per month in principle and interest.
But the same loan at 7 percent would increase payments to $1,348 a month.
You can enter your own data and see how rates work by clicking on this link.
USA Today points out:
Now, the real estate
market is cooling, interest rates are rising and tens of thousands more
Americans are starting to have trouble paying their mortgages. Nearly
25 percent of mortgages -- 10 million -- carry adjustable interest rates. And
most of them went to people with subpar credit ratings who accepted
higher interest rates, according to the Mortgage Bankers Association.
"Within the last
year, I would say 60 percent to 70 percent of calls to our hotlines are issues
related to ARM (adjustable-rate mortgage) loans," says Chris Krehmeyer,
executive director of Beyond Housing, a non-profit group that offers
homeownership support services in St. Louis. "That's significantly higher than in years past, because the ARMs are coming home to roost."
Last week, the Federal Reserve
raised interest rates for the 15th time since June 2004 and signaled
that at least one more increase is likely. That trend is ominous for
borrowers who were seduced by adjustable-rate loans that offered
interest-only payment options or teaser rates below 2 percent or that let the
borrower pay less than the interest owed. They will face bigger payment
shock once their loans reset to higher rates.
The problems are already popping up. USA Today said:
The number of
borrowers in trouble will rise this year and peak in 2007 and 2008 as
the largest number of mortgages reset to higher rates, according to
First American Real Estate Solutions, a real estate data provider.
Already, in West Virginia, Alabama, Michigan, Missouri and Tennessee,
about one in five homeowners with a high-interest (subprime) ARM was at
least 30 days late at the end of last year, according to the Mortgage Bankers Association. After 90 days, the foreclosure clock starts ticking.
Most of those
foreclosures are related to job losses in auto and garment factories;
higher mortgage payments were often the last straw.
What worries experts
such as Christopher Cagan at First American Real Estate Solutions are
the adjustable-rate loans made in 2004 and 2005, at the end of the
housing boom. These loans were concentrated in the hottest markets, such as California,
where about 60 percent of all loans last year were interest-only or
payment-option ARMs. That's the highest such rate in the country.
For more information, see related stories from WCPO-TV in Cincinnati, the Sioux City (Iowa) Journal, The (Delaware) News Journal and the Los Angeles Times.
Delta Pilots Authorize Strike
With a 94.7 percent vote to authorize a strike,
the pilots of Delta Air Lines gave union leaders the authority to set a strike date. The
pilots have said if an arbitration panel decides (by April 15) to void
the pilots' contract, they will walk. Delta has said a strike would
sink the airline.
This may be a good time to explain travel insurance to your readers/viewers/listeners. They may find that they cannot buy travel insurance once a strike has been authorized. It
still is unclear, as I write this, whether all travel insurance companies will
see the actions taken so far as an official strike authorization.
Here is a site that will link you to 16 travel insurers.
But
you may have other ways to protect yourself. My travel agent says that
if you pay for your ticket with a credit card and the airline fails to
perform the service you have contracted for, you may be able to get
your money back. It all depends on the credit card company. I talked to
my credit card company about this and they said they would "dispute the
transactions" for me if I got stuck holding tickets.
Travelsense.com explains:
- A strike can only
legally occur after the [U.S. National] Labor Relations Board declares an impasse in
talks between the airline and the union. Once this occurs, the union
must wait 30 days before a strike can be called. As a result, travelers
holding tickets for the period immediately following the 30-day cooling
off period should review their options.
- An airline affected
by a strike is not required to re-accommodate you on other airlines.
Strikes are not covered in most airlines' Contract[s] of Carriage, and
most airlines will do nothing more than provide you with a refund, but
only after a strike is imminent (within a day or two of being called).
- The U.S. government offers no protection. No laws exist to force other airlines to carry you to your destination.
- Some airlines may
offer to accommodate you and waive certain advance purchase
restrictions if receipt of purchase is provided, but these options are
often limited and are generally only offered shortly before, or just
after, a strike is called. Also, these offers are of little value to
you if the flights are full.
Congress Considers Killing Rural Telephone Subsidies
The Gannett News Service explains
how, if Congress changes a federal subsidy program for rural telephone users, phone bills for folks who live in far-flung communities will go up -- maybe way
up.
The story says that it's likely nothing will happen this year, but the cost
of the program is growing -- which makes it a juicy target for budget cuts.
Fred Paxton
I want to take a
moment to honor the memory of a good man and a fine journalist. Fred Paxton, the chairman of Paxton Media Group based in Paducah, Ky., died Sunday at age 73. The group owned WPSD-TV and The Paducah Sun
and a number of newspapers throughout the south. I knew him to be a man
of deep faith who was committed to making his community better.
The Associated Press reported:
Sen. Mitch McConnell, R-Ky., said he often called on Paxton for advice on political issues.
"I don't think there was a single civic or governmental issue that affected far-western Kentucky that I didn't start with Fred to gather information," McConnell told The Paducah Sun, which Paxton Media owns.
"He was a man of great influence," McConnell said, "but he never abused his clout for personal gain."
Mr. Paxton hired me as a producer more than 25 years ago. The
station had big visions for a medium market. Even though he
owned the TV station and the newspaper in Paducah, he encouraged us to
be competive with each other so nobody could say we were running a
monopoly.
Back then, WPSD was small enough that Mr. Paxton approved all travel. Fred let
me take a trip to cover a story and told me to stop by the accounting
office to get an expense check. When I returned home, I delivered an
envelope with money left over from the trip. The accounting office was
mystified. "What's this?" Betty, the accountant, asked. I explained that I
had not spent all of the money. "Look," she told me, "Mr. Paxton
approved that money and expected you to spend it."
I loved working for Fred Paxton. What a completely decent man.
We are always looking for your great ideas. Send Al a few sentences and hot links.
Editor's Note: Al's Morning Meeting is a compendium
of ideas, edited story excerpts and other materials from a variety of
Web sites, as well as original concepts and analysis. When the
information comes directly from another source, it will be attributed
and a link will be provided whenever possible. The column is
fact-checked, but depends upon the accuracy and integrity of the
original sources cited. Errors and inaccuracies found will be corrected. 
