It is specific in each set of loan docs. It can be LIBOR (1 month, 3 month, 6 month or 1 yr, they are all different rates) OR COFI, COSI etc. ALWAYS plus a margin.
The Option Arm loan, which is the WORST loan ever created for the borrower, and the best for the lender, could become the downfall of several lenders.
The higher the margin was, the larger the commission was to the “mortgage pro” selling it, up to 4%, for screwing the borrower. It still exists today.
It’s actually been very surprising to me that the media hasn’t jumped on this yet. Had the market just stayed even, there would still be thousands of people who would owe 15% to 25% more than the house was worth. With the decline, they have negative equity built in added to the market decline.
It was easy to owe 15% more than your loan started at within 3 years.
