Poll destroys stereotype of credit-junkie homeowner

Nation's Housing

October 16, 2005|By KENNETH HARNEY

Everybody knows that today's homeowners handle their mortgage debts differently from earlier generations, right? They gladly sign up for monster-sized mortgages, skimp on down payments, and have an unhealthy appetite for financing techniques that lower monthly payments by deferring reality - interest-only loans, option adjustable rate mortgages (ARMs) and negative amortization loans.

Do homeowners actually pay down their mortgages to zero anymore, or do they simply refinance every few years until it is time to sell or die?

But hold off a minute with all the stereotypes: New consumer research suggests that some of these images are just plain wrong.

A nationally representative statistical sample of 1,347 American homeowners polled by Opinion Research Corp. from Sept. 22 to Sept. 26 found that the overwhelming majority of homeowners plan to pay off their mortgages within specific timelines, and that a surprising chunk of them - 30 percent - already have.

The survey was commissioned by Ditech.com, the General Motors online mortgage subsidiary, and was part of an even larger statistical sample of consumers that included non-owners.

What jumps out of the survey is the relatively sober approach most owners are taking to managing their mortgage debts. For example, 38 percent of them say they have already paid off more than 50 percent of their original home financing, including first and second mortgages and equity lines. Nearly another third say they've already paid off their mortgage debts in full - including 47 percent of owners 50 years or older. And 38 percent say they expect to be fully paid off sometime in the next 10 years.

Only 4 percent of all owners say they don't plan or expect to pay off their mortgage - they just haven't thought about it - and just 6 percent expect to extinguish their debts solely by selling the property.

Debt levels in the survey were nowhere near as high as stereotypes might suggest. Just 12 percent reported first and second mortgage totals in excess of $150,000; 19 percent have $75,000 to $150,000 in unpaid home loan debt; and 30 percent have less than $75,000 outstanding. Even in California, the survey found that just 30 percent of owners are carrying $150,000 or more in mortgage debt.

Those numbers don't resemble the irresponsible credit junkies portrayed by some critics and housing-bust doomsayers. Yet the findings don't surprise analysts who keep a close eye on household credit patterns, delinquency rates, foreclosures and debt management.

Allen Fishbein, director of housing and credit policy for the Consumer Federation of America, says the Ditech.com survey findings "are consistent" with research his group has conducted.

"I think that the notion that consumers think of their home as just a piggy bank is really oversold," said Fishbein in an interview. "People actually do everything they can to stay current on their loans and they do plan to pay them off. There are a lot more old-fashioned values out there in the market than a lot of people assume."

The challenge for many consumers - especially those in high-cost, high-appreciation areas on the East and West coasts - is that the sheer expense of buying a house may "force them into [nontraditional] loan products that are the only way for them to be able to afford what they want," said Fishbein.

How to get out of these potentially toxic mortgages - and into better replacements that allow them to pay off their debts over a prudent time period - may well be the next big hurdle for some owners.

A couple of years down the road, hundreds of thousands of interest-only and option-ARM loans will be morphing into more costly instruments. At that point, some owners will face stark questions about the alternatives available that make financial sense.

Some will undoubtedly opt for the predictability and stability of fixed-rate mortgages with shorter terms - 15-year loans designed to move owners to full payoffs more quickly. Others will probably opt for "hybrid" mortgages that combine fixed rates and fully amortizing payments for five, seven or even 10 years before converting to adjustable payments.

Whatever they end up choosing, if Ditech's survey findings are correct, they won't be doing it casually. As Fishbein put it, "people take their [mortgage] responsibilities very seriously." That's why delinquency and foreclosure rates remain relatively low, despite record-setting housing prices. The sky-is-falling pundits and sages who think otherwise probably aren't talking to America's homeowners themselves.

kenharney@earthlink.net.

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