The wave of the sub-prime mortgage crisis is being spread throughout the Korean community.
According to real estate industry statistics, the Residential Jumbo Loan Mortgage, which applies to loans over $417,000 per household, soared 1% to 1.5% within the past several weeks.
Therefore, those who entered into contracts for Residential Jumbo Loan mortgages have been facing financial hardship. The effects of the increased interest rate have affected many people. These people can no longer pay their mortgage, and are turning to attorneys to seek bankruptcy and short sale advice. Short sales involve obtaining the bank’s permission to sell houses for less than the mortgaged amount, and having the bank absorb the loss.
*Residential tenant, No Way Out – Mr. Kim in Long Island has just entered into a contract to purchase a newly constructed condominium unit in College Point, Queens last April. He frowns badly, however, as the interest rate on the residential mortgage went up drastically. He purchased the unit for $790,000, paying a 10% down payment, and planned to move-in in early October. When the contract was signed, Mr. Kim predicted that the Jumbo interest rate would be fixed for 30 years at 6.3%. However, the Jumbo interest rate has risen to nearly 8% with the recent hike, increasing his monthly payments by approximately $600.
The problem is that due to the conditions of the contract with the developer of the condominiums, Mr. Kim cannot renege the contract regardless of the drastic increase in how much he would have to pay on his monthly mortgage payments. The contract states that even if Mr. Kim cannot obtain a mortgage commitment, he would be obligated to obtain a mortgage through the developer.
Mr. Oh in Flushing, who has just entered into a contract to purchase a $990,000 house, has a favorable contract provision which allows him to void his contract if he cannot obtain a mortgage through diligent efforts.
If Mr. Oh’s mortgage is rejected, he can be refunded his $100,000 deposit without any penalties.
“My credit score is not good,” Mr. Oh says “and the mortgage interest rate has increased a lot. With a greater burden for the monthly mortgage payment, it is very difficult for me to purchase a house.” For now, Mr. Oh is observing the movement of the interest rate.
Another gentleman, Mr. Park, 50, purchased a $500,000 house with 10% down payment 3 years earlier as an investment. Recently, his monthly mortgage payment increased by $1,000 from $2,500 to $3,500, so he filed a loan modification to lighten the burden. However, the review process for loan modifications became stricter so it takes over 3 months for an application to be processed and reviewed.
*Increase in Potential Bankruptcy Filings– According to Kim & Bae, P.C., whose partners are B.J. Kim and Christine M. Bae, more than 60 clients have inquired as to whether they should file for bankruptcy, enter into a short sale, or foreclosure on properties that have been delinquent in payments this past month.
“In the past, clients have asked about bankruptcy because of accumulated personal debt,” says Christine Bae “but these days, in most cases, clients contemplate bankruptcy because they cannot afford to pay their monthly mortgage payments for the house they own.”
Reporter Joong-gu Lee, Joon-yong Ahn