x1y2z3, thanks for all those insightful answers. That was a lot of typing. It’s really great to have an insider’s view of the mortgage industry.
Could you elaborate on the ARM resets? Someone on this forum thought ARM resets would not affect most of the people who took them out, since there is a large group of people who will get 25-50% pay raises within their adjustment period. He cited professionals in startup positions in engineering, law, or doctors. If the doctor took an ARM while in residency, he would surely be able to pay the new mortgage when he’s a full doctor earning much more. I’m wondering for your own experience, how many of the people you saw, who took out adjustable loans, were in jobs like this, or expected promotions.
How many people thought ahead of how high their payments could go? Or was the idea that they would just refinance when it got too high? In other words, how many people are even aware yet of what will hit them?
What did your office do with the loans after purchase? I am interested in learning more about what happens after the loan is sold off, who buys them, and WHY they would take on such high risk. Is this MBS owned by all of us, without our knowledge, i.e. in our money market holdings, pension funds? How much of the City of San Diego pension money is in 2nd mortgages or MBS or CMOs? Perhaps we cannot find out.
I personally think the ARM resets are going to make this housing bubble bust worse than any in history, and they are causing the market to soften nationwide. I was in Omaha, NE this summer, and I saw “price reduced” in housing ads. A friend told me one builder went under, and her office did one 3/1 ARM for a non-English speaking woman who had 5 half-dressed kids in tow and didn’t even own a car. People all over stretched into homes with subpar credit and qualifying on those teaser rates. For this reason, the reset problem will bust housing nationwide.
