Home › Forums › Financial Markets/Economics › Why Borrowers May Not Benefit From Rate Cut
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(former)FormerSanDiegan.
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December 12, 2007 at 11:31 AM #11182December 12, 2007 at 11:43 AM #115110
(former)FormerSanDiegan
ParticipantNot all loan rates have tracked the Fed cuts. Here’s what to expect:
— Borrowers with ARMs tied to Libor aren’t seeing much relief.
This is simply Not true.
The 1-year LIBOR stood at 5.425% in July 2007.
It is currently at 4.46%.
reference
http://www.moneycafe.com/library/libor.htmThat’s almost a full point in relief for ARMS tied to 12-month LIBOR.
December 12, 2007 at 11:43 AM #115313(former)FormerSanDiegan
ParticipantNot all loan rates have tracked the Fed cuts. Here’s what to expect:
— Borrowers with ARMs tied to Libor aren’t seeing much relief.
This is simply Not true.
The 1-year LIBOR stood at 5.425% in July 2007.
It is currently at 4.46%.
reference
http://www.moneycafe.com/library/libor.htmThat’s almost a full point in relief for ARMS tied to 12-month LIBOR.
December 12, 2007 at 11:43 AM #115239(former)FormerSanDiegan
ParticipantNot all loan rates have tracked the Fed cuts. Here’s what to expect:
— Borrowers with ARMs tied to Libor aren’t seeing much relief.
This is simply Not true.
The 1-year LIBOR stood at 5.425% in July 2007.
It is currently at 4.46%.
reference
http://www.moneycafe.com/library/libor.htmThat’s almost a full point in relief for ARMS tied to 12-month LIBOR.
December 12, 2007 at 11:43 AM #115271(former)FormerSanDiegan
ParticipantNot all loan rates have tracked the Fed cuts. Here’s what to expect:
— Borrowers with ARMs tied to Libor aren’t seeing much relief.
This is simply Not true.
The 1-year LIBOR stood at 5.425% in July 2007.
It is currently at 4.46%.
reference
http://www.moneycafe.com/library/libor.htmThat’s almost a full point in relief for ARMS tied to 12-month LIBOR.
December 12, 2007 at 11:43 AM #115277(former)FormerSanDiegan
ParticipantNot all loan rates have tracked the Fed cuts. Here’s what to expect:
— Borrowers with ARMs tied to Libor aren’t seeing much relief.
This is simply Not true.
The 1-year LIBOR stood at 5.425% in July 2007.
It is currently at 4.46%.
reference
http://www.moneycafe.com/library/libor.htmThat’s almost a full point in relief for ARMS tied to 12-month LIBOR.
December 12, 2007 at 12:40 PM #115344DaCounselor
ParticipantFSD is right. The Libor spread has been pretty high, but after we get through year-end and in conjunction with the money-drop announced today (which is not likely to be the last) I expect the spread to contract. My wild guess and I don’t think I’m venturing too far out on a limb is that we will see more Fed cuts as we enter ’08. I think we will ease to 3.5 and see a Libor spread contraction and the 6 mo. and 1 yr. Libor both below 4.0.
My 2 top mortgage broker sources maintain that they sold a ton of 3/1 and 5/1 10 yr. IO ARMS in ’04 and ’05 with initial rates in the 5.5-5.75 range, 1 yr Libor index with 2.0-2.25 margins. From the looks of where we are headed, these loan resets may result in minimal if any payment increases. In addition, if they are on the front end of an 80/20 package with (as I’m told) a HELOC 2nd tied to the prime rate plus a 2.0-2.25 margin, well, the payments on the 2nd have been falling since the first Fed cut, and again are likely to fall further as we go forward.
So the question begged is what percentage of the impending resets are on these types of loans, where the payment adjustment will be minimal if any on the 1st and is actually falling on the 2nd? This I do not know.
December 12, 2007 at 12:40 PM #115308DaCounselor
ParticipantFSD is right. The Libor spread has been pretty high, but after we get through year-end and in conjunction with the money-drop announced today (which is not likely to be the last) I expect the spread to contract. My wild guess and I don’t think I’m venturing too far out on a limb is that we will see more Fed cuts as we enter ’08. I think we will ease to 3.5 and see a Libor spread contraction and the 6 mo. and 1 yr. Libor both below 4.0.
My 2 top mortgage broker sources maintain that they sold a ton of 3/1 and 5/1 10 yr. IO ARMS in ’04 and ’05 with initial rates in the 5.5-5.75 range, 1 yr Libor index with 2.0-2.25 margins. From the looks of where we are headed, these loan resets may result in minimal if any payment increases. In addition, if they are on the front end of an 80/20 package with (as I’m told) a HELOC 2nd tied to the prime rate plus a 2.0-2.25 margin, well, the payments on the 2nd have been falling since the first Fed cut, and again are likely to fall further as we go forward.
So the question begged is what percentage of the impending resets are on these types of loans, where the payment adjustment will be minimal if any on the 1st and is actually falling on the 2nd? This I do not know.
December 12, 2007 at 12:40 PM #115301DaCounselor
ParticipantFSD is right. The Libor spread has been pretty high, but after we get through year-end and in conjunction with the money-drop announced today (which is not likely to be the last) I expect the spread to contract. My wild guess and I don’t think I’m venturing too far out on a limb is that we will see more Fed cuts as we enter ’08. I think we will ease to 3.5 and see a Libor spread contraction and the 6 mo. and 1 yr. Libor both below 4.0.
My 2 top mortgage broker sources maintain that they sold a ton of 3/1 and 5/1 10 yr. IO ARMS in ’04 and ’05 with initial rates in the 5.5-5.75 range, 1 yr Libor index with 2.0-2.25 margins. From the looks of where we are headed, these loan resets may result in minimal if any payment increases. In addition, if they are on the front end of an 80/20 package with (as I’m told) a HELOC 2nd tied to the prime rate plus a 2.0-2.25 margin, well, the payments on the 2nd have been falling since the first Fed cut, and again are likely to fall further as we go forward.
So the question begged is what percentage of the impending resets are on these types of loans, where the payment adjustment will be minimal if any on the 1st and is actually falling on the 2nd? This I do not know.
December 12, 2007 at 12:40 PM #115268DaCounselor
ParticipantFSD is right. The Libor spread has been pretty high, but after we get through year-end and in conjunction with the money-drop announced today (which is not likely to be the last) I expect the spread to contract. My wild guess and I don’t think I’m venturing too far out on a limb is that we will see more Fed cuts as we enter ’08. I think we will ease to 3.5 and see a Libor spread contraction and the 6 mo. and 1 yr. Libor both below 4.0.
My 2 top mortgage broker sources maintain that they sold a ton of 3/1 and 5/1 10 yr. IO ARMS in ’04 and ’05 with initial rates in the 5.5-5.75 range, 1 yr Libor index with 2.0-2.25 margins. From the looks of where we are headed, these loan resets may result in minimal if any payment increases. In addition, if they are on the front end of an 80/20 package with (as I’m told) a HELOC 2nd tied to the prime rate plus a 2.0-2.25 margin, well, the payments on the 2nd have been falling since the first Fed cut, and again are likely to fall further as we go forward.
So the question begged is what percentage of the impending resets are on these types of loans, where the payment adjustment will be minimal if any on the 1st and is actually falling on the 2nd? This I do not know.
December 12, 2007 at 12:40 PM #115140DaCounselor
ParticipantFSD is right. The Libor spread has been pretty high, but after we get through year-end and in conjunction with the money-drop announced today (which is not likely to be the last) I expect the spread to contract. My wild guess and I don’t think I’m venturing too far out on a limb is that we will see more Fed cuts as we enter ’08. I think we will ease to 3.5 and see a Libor spread contraction and the 6 mo. and 1 yr. Libor both below 4.0.
My 2 top mortgage broker sources maintain that they sold a ton of 3/1 and 5/1 10 yr. IO ARMS in ’04 and ’05 with initial rates in the 5.5-5.75 range, 1 yr Libor index with 2.0-2.25 margins. From the looks of where we are headed, these loan resets may result in minimal if any payment increases. In addition, if they are on the front end of an 80/20 package with (as I’m told) a HELOC 2nd tied to the prime rate plus a 2.0-2.25 margin, well, the payments on the 2nd have been falling since the first Fed cut, and again are likely to fall further as we go forward.
So the question begged is what percentage of the impending resets are on these types of loans, where the payment adjustment will be minimal if any on the 1st and is actually falling on the 2nd? This I do not know.
December 12, 2007 at 2:00 PM #115292(former)FormerSanDiegan
ParticipantDaCounselor – Thanks for the info. There has been much hay made with respect to the mortgage reset chart. Many of the resets for sub-prime as well as Alt-a and prime that occurred in 2006 and 2007 were huge jumps, and the resulting jumps in foreclosures are influenced by those in concert with declining prices.
Many have speculated that the second wave of loan resets coming in the next 12 months will be worse than the effect of the resets thus far. However, people need to consider the potential that many alt-A and prime borrowers with loan resets in 2008-2009 will not be hit nearly as hard as the sub-prime folks circa 2006.
December 12, 2007 at 2:00 PM #115165(former)FormerSanDiegan
ParticipantDaCounselor – Thanks for the info. There has been much hay made with respect to the mortgage reset chart. Many of the resets for sub-prime as well as Alt-a and prime that occurred in 2006 and 2007 were huge jumps, and the resulting jumps in foreclosures are influenced by those in concert with declining prices.
Many have speculated that the second wave of loan resets coming in the next 12 months will be worse than the effect of the resets thus far. However, people need to consider the potential that many alt-A and prime borrowers with loan resets in 2008-2009 will not be hit nearly as hard as the sub-prime folks circa 2006.
December 12, 2007 at 2:00 PM #115326(former)FormerSanDiegan
ParticipantDaCounselor – Thanks for the info. There has been much hay made with respect to the mortgage reset chart. Many of the resets for sub-prime as well as Alt-a and prime that occurred in 2006 and 2007 were huge jumps, and the resulting jumps in foreclosures are influenced by those in concert with declining prices.
Many have speculated that the second wave of loan resets coming in the next 12 months will be worse than the effect of the resets thus far. However, people need to consider the potential that many alt-A and prime borrowers with loan resets in 2008-2009 will not be hit nearly as hard as the sub-prime folks circa 2006.
December 12, 2007 at 2:00 PM #115334(former)FormerSanDiegan
ParticipantDaCounselor – Thanks for the info. There has been much hay made with respect to the mortgage reset chart. Many of the resets for sub-prime as well as Alt-a and prime that occurred in 2006 and 2007 were huge jumps, and the resulting jumps in foreclosures are influenced by those in concert with declining prices.
Many have speculated that the second wave of loan resets coming in the next 12 months will be worse than the effect of the resets thus far. However, people need to consider the potential that many alt-A and prime borrowers with loan resets in 2008-2009 will not be hit nearly as hard as the sub-prime folks circa 2006.
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