60 Minutes – 2nd Wave – Option ARMS+ALT As

[(former)FormerSanDiegan]

[quote=esmith][quote=peterb]Someone needs to go out on a limb here and call for a market bounce in early 2009!! [/quote]

OK, let me play devil’s advocate.

– Option ARM payments reset every year. Much-hyped reset charts refer to the date of final reset to fully amortizing. In reality, payments go up bit by bit (maybe 10% a year) and then jump when the principal cap is hit. For a distressed borrower who had to lie about his/her income and get an option ARM just to afford the house, every reset has a potential to overload his/her financial capacity and cause a delinquency.

– There was a study by First American Loan Performance that found that a “double-digit percentage” of all option ARMs in San Diego area were 60 days delinquent as of October 2007. What’s the delinquency rate today? No one knows for sure.

– How many option ARMs were there in San Diego to begin with? We had 22 thousand defaults in the county in 2007 and 31 thousand thus far in 2008. How many non-delinquent ARMs are left?

– Is it possible that the impending Alt-A tsunami might turn out to be a fizzle?[/quote]

The other point that folks who are afraid of the reset monster forget is to consider what the rate will be at reset.

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%.

This means that these loans, if resetting today would reset at or below their original rate. Perhaps as low as 4.75% !!!

Don’t get me wrong, The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.

[Eugene]

I found some data to answer one of my own questions. In Q3 2006, 29.92 percent of the 6,134 [securitized] loans originating in San Diego were option ARMs. Thats 1,835 in one quarter. Their percentage was below 10% until Q3 2004 and they went away in 2007. So, the total number of option ARMs ever issued in San Diego was probably in 15,000 to 20,000 range.

[Eugene]

I found some data to answer one of my own questions. In Q3 2006, 29.92 percent of the 6,134 [securitized] loans originating in San Diego were option ARMs. Thats 1,835 in one quarter. Their percentage was below 10% until Q3 2004 and they went away in 2007. So, the total number of option ARMs ever issued in San Diego was probably in 15,000 to 20,000 range.

[Eugene]

I found some data to answer one of my own questions. In Q3 2006, 29.92 percent of the 6,134 [securitized] loans originating in San Diego were option ARMs. Thats 1,835 in one quarter. Their percentage was below 10% until Q3 2004 and they went away in 2007. So, the total number of option ARMs ever issued in San Diego was probably in 15,000 to 20,000 range.

[Eugene]

I found some data to answer one of my own questions. In Q3 2006, 29.92 percent of the 6,134 [securitized] loans originating in San Diego were option ARMs. Thats 1,835 in one quarter. Their percentage was below 10% until Q3 2004 and they went away in 2007. So, the total number of option ARMs ever issued in San Diego was probably in 15,000 to 20,000 range.

[Eugene]

I found some data to answer one of my own questions. In Q3 2006, 29.92 percent of the 6,134 [securitized] loans originating in San Diego were option ARMs. Thats 1,835 in one quarter. Their percentage was below 10% until Q3 2004 and they went away in 2007. So, the total number of option ARMs ever issued in San Diego was probably in 15,000 to 20,000 range.

[DWCAP]

ok, so FSD has a very good point. The Option ARMs are toast, but not necessaraly all the ARMs. But the buy downs we are seeing in interest rates will not last forever. Eventually we will stop the maddness. And then what? Rates will go back up to 6-7%+, the borrowers will still owe huge amounts, and they will still be underwater (unless we relive 2004). We will be right back where we were before the bailouts with high foreclosures and underwater “owners”. The fundamental issue is that a majority of these people purchased houses that they were unable to afford and all the financial magic aside, they still cant afford it at prevailing/normal interest rates. So we will have 5-8 years of housing pain instead of 3 years of housing chaos. Eventually though, these places will have to “readjust”.
That is unless we see strong wage growth in the next few years, but I have no idea how that would happen.

[DWCAP]

ok, so FSD has a very good point. The Option ARMs are toast, but not necessaraly all the ARMs. But the buy downs we are seeing in interest rates will not last forever. Eventually we will stop the maddness. And then what? Rates will go back up to 6-7%+, the borrowers will still owe huge amounts, and they will still be underwater (unless we relive 2004). We will be right back where we were before the bailouts with high foreclosures and underwater “owners”. The fundamental issue is that a majority of these people purchased houses that they were unable to afford and all the financial magic aside, they still cant afford it at prevailing/normal interest rates. So we will have 5-8 years of housing pain instead of 3 years of housing chaos. Eventually though, these places will have to “readjust”.
That is unless we see strong wage growth in the next few years, but I have no idea how that would happen.

[DWCAP]

ok, so FSD has a very good point. The Option ARMs are toast, but not necessaraly all the ARMs. But the buy downs we are seeing in interest rates will not last forever. Eventually we will stop the maddness. And then what? Rates will go back up to 6-7%+, the borrowers will still owe huge amounts, and they will still be underwater (unless we relive 2004). We will be right back where we were before the bailouts with high foreclosures and underwater “owners”. The fundamental issue is that a majority of these people purchased houses that they were unable to afford and all the financial magic aside, they still cant afford it at prevailing/normal interest rates. So we will have 5-8 years of housing pain instead of 3 years of housing chaos. Eventually though, these places will have to “readjust”.
That is unless we see strong wage growth in the next few years, but I have no idea how that would happen.

[DWCAP]

ok, so FSD has a very good point. The Option ARMs are toast, but not necessaraly all the ARMs. But the buy downs we are seeing in interest rates will not last forever. Eventually we will stop the maddness. And then what? Rates will go back up to 6-7%+, the borrowers will still owe huge amounts, and they will still be underwater (unless we relive 2004). We will be right back where we were before the bailouts with high foreclosures and underwater “owners”. The fundamental issue is that a majority of these people purchased houses that they were unable to afford and all the financial magic aside, they still cant afford it at prevailing/normal interest rates. So we will have 5-8 years of housing pain instead of 3 years of housing chaos. Eventually though, these places will have to “readjust”.
That is unless we see strong wage growth in the next few years, but I have no idea how that would happen.

[DWCAP]

ok, so FSD has a very good point. The Option ARMs are toast, but not necessaraly all the ARMs. But the buy downs we are seeing in interest rates will not last forever. Eventually we will stop the maddness. And then what? Rates will go back up to 6-7%+, the borrowers will still owe huge amounts, and they will still be underwater (unless we relive 2004). We will be right back where we were before the bailouts with high foreclosures and underwater “owners”. The fundamental issue is that a majority of these people purchased houses that they were unable to afford and all the financial magic aside, they still cant afford it at prevailing/normal interest rates. So we will have 5-8 years of housing pain instead of 3 years of housing chaos. Eventually though, these places will have to “readjust”.
That is unless we see strong wage growth in the next few years, but I have no idea how that would happen.

[j]

The mainstream media is just about up to speed now.

[j]

The mainstream media is just about up to speed now.

[j]

The mainstream media is just about up to speed now.

[j]

The mainstream media is just about up to speed now.

[Author]

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