[quote=JordanT]Your typical alt-A 5/1 ARM that originated in 2005 at 5.5- 5.75%, is tied to 12-month Libor with a margin of 2.25%.
Currently the 12-month LIBOR is under 2.5%.
5 years ago the 12-month LIBOR was at 1.4%. The loans resetting this month, reset to a higher interest rate until we get into loans that originated in June 2004 and later. For the next six months without the LIBOR going down, ARMS are going to reset higher. For 7/1 ARMS the 12-month LIBOR 7-years ago was 1.4% as well. The next two years of 7/1 ARMS saw the LIBOR at 1.4% meaning that there’s a very good chance they’ll reset higher as well, barring a drop in the LIBOR.[/quote]
You are incorrect. You seem to be confusing the start rate with the fully indexed rate. Loans originated in the Fall of 2003 when the 12-month LIBOR was in the 1.4% range had start rates of 5.5% with no points. I know this because I had such a loan.
Also, for the Jumbo loans in 2005 that I was looking into the start rate was 5.625% when the LIBOR was in the 4.25% range.
The start rate is often different than the fully indexed rate and tended to follow longer-term rates. The relationship between the start rate and fully indexed rates depends on the yield curve.
