Any data on prevalence of option ARM in pricier neighborhoods?

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Submitted by bluemoon on October 5, 2008 - 10:34pm

As a renter, I have heard from time to time that pricer neighborhoods like Carmel Valley and Del Mar have thus far resisted the larger price drops that have already occured in places like Chula Vista or Escondido, albeit they have taken small drops.

I have heard that one of the reasons is that there is a high prevalence rate of option-ARM loans where folks don't have to pay all their interest each month which will, in turn, cause the principal to grow and grow until they hit some set point above the original principal at which point, homeowners need to start paying down the principal as well as the interest.

My question is does anyone have any hard data (well educated guesses are also welcome) on how saturated these neighborhoods (ie what percentage of loans) are with these types of risky loans and what a timeline of the "reset" to higher monthly payments might look like and when they might pop up as short sales, defaults or foreclosures?

Thanks!

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Mr. Mortgage probably has an
Submitted by TheBreeze on October 5, 2008 - 10:45pm.

Mr. Mortgage probably has an article on this somewhere:

http://mrmortgage.ml-implode.com/

I do know that a friend of
Submitted by meadandale on October 5, 2008 - 11:02pm.

I do know that a friend of mine who bought a house in 4$ last fall for $700k bought it using an interest only ARM. And at one time I thought he was a smart guy...

meadandale wrote:I do know
Submitted by fat_lazy_union_... on October 5, 2008 - 11:05pm.

meadandale wrote:
I do know that a friend of mine who bought a house in 4$ last fall for $700k bought it using an interest only ARM. And at one time I thought he was a smart guy...

The guy is a genius, because he will probably get to to have his loan modified, unlike if he actually put down 20% and did a 30year fixed :(

fat_lazy_union_worker
Submitted by TheBreeze on October 5, 2008 - 11:26pm.

fat_lazy_union_worker wrote:
meadandale wrote:
I do know that a friend of mine who bought a house in 4$ last fall for $700k bought it using an interest only ARM. And at one time I thought he was a smart guy...

The guy is a genius, because he will probably get to to have his loan modified, unlike if he actually put down 20% and did a 30year fixed :(

Actually, getting an interest-only loan is the smartest thing a buyer can do. He gets the mortgage deduction, he may end up paying less than comparable rent, and he can walk away when he's ready unless the value of the house goes up -- in that case he can sell and keep the cash.

Interest-only buyers get all of the upside with none of the downsides.

Hopefully that will not be
Submitted by SD Realtor on October 6, 2008 - 12:03am.

Hopefully that will not be the case. However this is my biggest fear. It is not just the option ARMs that are up for grabs. It is HELOCs and other seconds, (cash outs) that can be "adjusted" by our government.

Once more I hope this does not happen yet... in the next year or two we may see some of the most incredible bailouts ever conceived on a home by home basis.

Hopefully I am wrong. If the government makes it worthwhile not to walk away it will be quite interesting.