Risky Florida Home Loans Taking Their Toll On Residents as Rates Reset

By now, we’ve all pretty much heard the sales pitches for the Florida home loans that just about any applicant can get.

• 100 percent financing!
• No closing costs!
• One percent interest!
• Low, looooow monthly payments!

A lot of people in the South Florida housing market did indeed rush into these unconventional mortgages in search of bargains. Not surprisingly, many are now starting to find themselves trapped by payments that are about to soar, even as the real estate market slumps.

It’s getting a lot harder for borrowers to make their payments as a result. Florida mortgage delinquencies are already beginning to tick up, and more defaults down the line could put more homes on the market that already has too many.

Cynthia Cariseo is struggling to make interest-only payments on an option ARM for the Dania Beach town house she bought last year. Cariseo said her Florida mortgage broker cited an interest rate of 3.4 percent — but did not tell her it applied only if she made a minimum monthly payment.

The actual rate: 8.4 percent. If she wants to refinance, she gets hit with an early payoff penalty of nearly $8,000. Cariseo put her vacation home in Mexico on sale last week, hoping to raise enough to pay the mortgage.

“I can’t get out of the loan, and I am stuck,” Cariseo said. “My payments have gone up three or four times… I know I’m not the only one, but that doesn’t make me feel any better.”

HOME LOANS WITH A CATCH

The rising use of exotic mortgages is yet another legacy of South Florida’s housing boom, the Miami Herald reports. Just about everyone wanted in, and some would-be homeowners — encouraged by brokers and lenders — jumped head first into huge debt.

In 2006 alone, more than 15 percent of new home loans in South Florida were what is known as “payment-option adjustable-rate.” That meant borrowers could start off by paying just the interest on their Florida home loan, or sometimes even less.

But there was a double catch — the interest rate spiked over time, and any unpaid interest got tacked on to the loan itself. The nasty result comes in the form of a rising interest rate on a growing loan. After several years of payments, a borrower could easily end up owing not less, but more - because there is no amortization.

Some borrowers didn’t realize the score. Others gambled that home values would rise quickly enough for them to refinance or sell if the going got rough. Now the going is getting rough — but home values aren’t rising.

The number of Florida borrowers missing mortgage payments has inched up marginally by less than half a percentage point from the second quarter of last year. The Sunshine State is still below national averages in foreclosure rates, partly because of a strong economy.

However, lenders say, higher payments are now just kicking in for those who bought during the boom — along with steep homeowner’s insurance hikes and higher property taxes from reassessment.

Alphoncia LaFrance, who owns Midas Lending in North Miami, said that more customers are feeling the squeeze and seeking Florida mortgage refinancing now before things get a lot worse in a hurry.

Audrey Roberton, mortgage lending manager for Dade County Federal Credit Bureau, is also seeing more customers who want out. Her company plans to mail a letter to customers in the next few weeks advising them to check their mortgage documents for upcoming payment spikes. It is also offering to review mortgages for customers at no charge.

And Ana Valenti-Brisuela, a broker in South Miami who also does financial planning, said many homeowners are walking a tightrope thanks to these reseting rates, even though the number of foreclosures has yet to spike significantly.

“People will avoid foreclosure at whatever cost becuse it results in bad credit. But some, especially those who bought at the peak of the market last year, are going to sell for $50,000 or $100,000 less than they bought for in order to save their credit,” she said.

UPSET BORROWERS

These exotic mortgages were originally meant as a tool for a small sliver of home buyers, not a mass market. For example, they might work well for a wealthy businessman on commission who understand the keys to investing in real estate and want to pay small sums some months but large payments in others.

But some mortgage brokers steered other people into such loans because they are generally larger and generate higher commissions.

Julio Escobar, who lives in N. Miami Beach, didn’t know what he was getting into when he took out an option ARM. Escobar refinanced a $204,000 Florida home loan loan a year and a half ago to reduce his monthly payment and cash out about $15,000 in home equity. He started paying $1,000 a month.

When he refinanced again into a fixed-rate loan in September, his payment had risen to $1,300 and, to his astonishment, his balance was $211,000.

“I was throwing money away. The broker we did the deal with didn’t really explain all that, or maybe it was a mistake on both sides,” he said.

The real hikes are likely to arrive en masse by next summer.

That’s when mortgage payments go up for more people. The worst case is where borrowers go “upside-down” — meaning they owe more than their property is worth. They could then have trouble refinancing or selling in a slower market. But despite a cooling housing market and the warnings from regulators and consumer groups, people are still drawn to exotic loans.

LaFrance said that over the past month, 60-100 people have called asking about the Florida home loans with the really low payments. More continue calling as people see the flashy ads.

“I explain to them what the loans are,” LaFrance said. “When I really explain it to them — most of them don’t want to do it.”