Multiple Refinancing Contributed to Mortgage Crisis
The chart above is from an article in today's Detroit News, illustrating how one Detroit homeowner got into foreclosure trouble: Ethel Cochran refinanced her home 7 different times within a ten-year period at adjustable rates, pulling out more and more equity each time.
30-year fixed-rate mortgages were available in 1987 for about 10%, which would mean that Ethel's original monthly house payment was only about $83 (principal and interest), and her mortgage balance today would be less than $6,000 with only ten years left to pay off the mortgage. Now she has a $116,000 mortgage that she can't pay, and is being evicted from her house.
What happened to the old-fashioned idea of making payments on your original mortgage, paying it off and having a "mortgage burning party?"
There's a perception that it was first-time howeowners who got in trouble with subprime adjustable-rate mortgages, but this story suggests that there were also many existing homeowners who also got in trouble with multiple refinancings, and have probably contributed to the current subprime mortgage crisis.