FSD, you forgot to include the 1 yr T-Bill index and the 11th District Cost of Funds index. Neither of these products were used in I/O loans, however, and both amortize every month if the borrower pays the “fully amortized” rate. They were NOT toxic. If the borrower chose/chooses Option 3 (the FA rate) when given a choice, they are good loans. I’ve had both but prefer the 11th Dist COFI as it is more “steady.”
As of today:
Current 1 yr. T-Bill is .28 (+ 3.25% to 3.60% margin, depending on creditworthiness) = 3.53% to 3.88% (adjusts once annually) 2% annual cap
Current 11th Dist COFI is 1.654 (+ 2.4% to 2.75% margin, depending on creditworthiness) = 4.054% to 4.404% (adjusts monthly) 2% annual cap
The problem with many Neg Am ARMS were the idiot borrowers who routinely chose the cheapest “option” to pay every month (typically Option 1), NOT the loans themselves.
Correction: I just went back thru some old mtg coupons. The 11 D program DID have an I/O Option the 1st 60 months only (Option 2). Option 1 was I/O + some deferred interest (a REALLY bad choice). Option 3 was the fully amortized rate and Option 4 was the 15-year amortized rate.
Not sure these type of Option ARMS are available anymore (that floated with the index). Was just checking and the 11D program now seems to reset every five years, floating with the index the first 60 months with a 7.5% annual payment fluctuation (up or down) beginning the 61st month, at which time the borrower has no more Options and must pay a fully amortized rate, adjusted annually on the loan anniversary and based upon how they handled the payment options the first 60 months . . . lol.
The first two programs I described here were widely available from about the early ’80’s until the early ’00’s and were good programs (for responsible borrowers).
