Major arrogance and bullying displayed here by flu …. and also a touch of OCD.
The biggest reason that prime borrowers took out Prime ARMs when they were common and available is primarily because they qualified for a particular loan amount based upon the index plus the margin (which were usually one in the same). Example from ~2000 to ~2003: 2.5% + 2.5% = 5%. This was 1.5 to 2.0 pts below the prevailing prime 30-yr fixed mortgage interest rate of 6.5% to 7% at the time.
Part of the reason ARMs are not used very much today is because both the prevailing 15-yr and 30-yr mortgage interest rate has been artificially kept low by the Fed and is thus right in line with (COFI) ARM index plus margin (3.11 to 3.61 on an older, aged mortgage) or lower than the (LIBOR and 1yr T-bill) index plus margin. The second reason is that, in the ensuing years (2003 to the present), ARM lenders have gotten greedy and increased their typical margin to 3% or more and also created annual payment backstops and automatic interest rate resets in their newer ARM programs, making them much less desirable to a prospective borrower than when they naturally flowed month to month with the index. The older “free-flowing” type of prime ARM programs have now gone by way of the dinosaur because lenders figured they couldn’t make enough money on them since the Fed got in the way of naturally flowing mortgage interest rates. And rightly so … they’ve been stuck with us holdouts for the last 8+ years and must adhere to their contracts (or the contracts they “acquired” when they bought the lending bank and folded its assets into themselves). Too bad, so sad for them … at least for now.
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See, once again, I actually contributed something to the forum without managing to hijack the thread by lobbing negative innuendos and hurling insults. Why don’t you consider taking a writing class so you will be able to express yourself more cogently around here, flu? Remedial Freshman English Composition (as well as “College for Kids”) is open this summer for a nominal fee at a CC near you!
