> Current rates are approaching 6%. So lets look at buying a house 
with an arm at 6%, and then what happens in 3 years if they rise to 
12%. >>

You sell the mortgage to a mortgage company with a cheaper rate. It 
is a self-regulating system.

> Lets assume 20% down, and  the buyer maxes out the % of income 
> wil usually allow for a mortgage, 30%. So a bloke making 96k a 
> could afford a 500,000 house, if he ponied up 100k down. Monthly
> payments would be just short of $2400/month. 28,800 annually. Thats
> 30% of his pre-tax income.
> Now if his ARM goes to 12%, his payments become 4,114 a month and  
> 49,373. per year. Thats now 51% of his income. A pretty big chunk. 
> taxes after deductions average about 24%, and he puts 10% in a 
> then he has about 15% of his income 1 in 6 dollars to buy food, 
> clothes, vacations, additional health, entertainment, etc. A bit 
of a
> pinch. >>>

Maybe he should have bought a $350,000 house instead of being so 

> If the ARMS lifetime cap were 9% -- more real world I believe than 

No, mine is a 6% rise cap over the lifetime of the mortgage.

> But the news gets much worse . When he bought his house, people in 
his income range could afford a 500k house, with 20% down. If 
> rates rose by 6% points, the same range buyers could only afford a
> 290k house -- a 42% drop. And the same happens to all ranged of 
buyers. >>>

So , he owns a high value commodity....sounds good.

>>> Suddenly, buyers can only afford and qualify for 58% of the cost 
of a house they could three years before. Thus, they bid at their 

No, because banks have to make money and believe , THEY WILL.
They will do so by adjusting to lower rates. The best rates with the 
best plan will get the clients and this will self-regulate the 
trend. It will not be as big a deal as you are claiming. 

> Sellers begin to lower prices to match demand and in time, >>>

No they won't, they will just hold on to them, fix them up, rent 
them out, whatever, until the market stabalises. It is a market 
correction, not a meltdown.

<<<If he
> sells, he loses his down payment, plus owes the lender $110k extra.
> Well, he could walk away you say. Sure. And ruin his credit. And he
> would still lose his 100 k down. And the lender would forgive the
> remaining loan of 110k after it forclosed. But the IRS counts that 
as income and the guy would pay taxes on that 110k.>>>

So he was doing it for a business? Not to live in it and stop paying 
10,000 to 30,000 in rent money down the drain every year. That is 
100,000 to 300,000 in money gone to waste...burned, every 10 years.
Your arguments are a joke compared to this. He is much better off 
owning a house than renting, but it is his tough luck if he didn't 
need a 500,000 house and was doing it as a business. He is still 
going to be better off than most businesses.

> And long term rates that new buyers face are not capped. So if they
> rose 9 % points over todays  rate,>>>

Nonsense, if all US mortgage companies are demanding 15 or 20 % 
interest, or more , someone somewhere will offer a lower rate and a 
better deal. 
This will automatically self-regulate the system. Even if - and this 
will NEVER happen - ALL the US mortgage companies start to charge 
exhorbitant rates, some companies in other countries will find a way 
to take that business from them by offering lower rates and setting 
up an office in US.

Take Canada for example, whose economy is booming and there is no 
end in sight. A Canadian company will end up offering a better rate 
and the US companies will be forced to compete and the whole thing 
will swing back to normalcy. It won't even get to that point though, 
as it is self-regulating and mortgage companies have to pander to 
the demand or go out of business.
It doesn't have to be Canada either. It could be GB, China, or even 

> But since the economy has been fueled by spending from home equity
> loans based on recent appreciation, and construction spending, this
> would halt suddenly if housing prices drop. The economy could go 
> a sharp recession. Employment rates would fall. >>

That won't happen. You are thinking parochially. We live in a global 
economy. Think big, your fears are based on small limits and 
localised imaginary constraints.


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