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

[sdrealtor]

I had an Option ARM on a flip a couple years back and one of my clietns who just sold their home had one too. They may have been the only people paying the 30yr fully amortized payment with extra principal payments every month too. Thats at least 2 out of the pipeline.

Point being while alot of them could be toast, ALL of them are NOT.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[Anonymous]

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.

[Anonymous]

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.

[Anonymous]

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.

[Anonymous]

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.

[Anonymous]

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.

[jpinpb]

Yes, us Piggs already knew about Alt-A and option ARMs and certainly Mr. Mortgage gave us the heads up, as well.

But for mainstream media to come out and announce it, gave new light.

I thought 60 minutes was great and the only problem I had w/it is that it did not fully explain the option ARMS.

From what I understand, you can choose to pay less than the actual monthly payment and whatever is left over that is due that you don’t pay is then tacked on to the actual loan amount.

So, if this is right, say you bought a 600k house and your payments, hypothetically, are 4k a month, but you’re only paying 2k a month, the remaining 2k is added to the loan amount of 600k.

This was attractive and not a concern for many, well, b/c real estate always appreciates.

So after 2 years of only paying 2k a month, means, quick math, almost 50k added to your loan of 600k.

Now to add insult to injury, your 600k house has lost, minimum 20% value. Now worth 480k, but you owe 650k and your loan has reset.

Double-whammy. Yeah. This is not going to end well.

[jpinpb]

Yes, us Piggs already knew about Alt-A and option ARMs and certainly Mr. Mortgage gave us the heads up, as well.

But for mainstream media to come out and announce it, gave new light.

I thought 60 minutes was great and the only problem I had w/it is that it did not fully explain the option ARMS.

From what I understand, you can choose to pay less than the actual monthly payment and whatever is left over that is due that you don’t pay is then tacked on to the actual loan amount.

So, if this is right, say you bought a 600k house and your payments, hypothetically, are 4k a month, but you’re only paying 2k a month, the remaining 2k is added to the loan amount of 600k.

This was attractive and not a concern for many, well, b/c real estate always appreciates.

So after 2 years of only paying 2k a month, means, quick math, almost 50k added to your loan of 600k.

Now to add insult to injury, your 600k house has lost, minimum 20% value. Now worth 480k, but you owe 650k and your loan has reset.

Double-whammy. Yeah. This is not going to end well.

[jpinpb]

Yes, us Piggs already knew about Alt-A and option ARMs and certainly Mr. Mortgage gave us the heads up, as well.

But for mainstream media to come out and announce it, gave new light.

I thought 60 minutes was great and the only problem I had w/it is that it did not fully explain the option ARMS.

From what I understand, you can choose to pay less than the actual monthly payment and whatever is left over that is due that you don’t pay is then tacked on to the actual loan amount.

So, if this is right, say you bought a 600k house and your payments, hypothetically, are 4k a month, but you’re only paying 2k a month, the remaining 2k is added to the loan amount of 600k.

This was attractive and not a concern for many, well, b/c real estate always appreciates.

So after 2 years of only paying 2k a month, means, quick math, almost 50k added to your loan of 600k.

Now to add insult to injury, your 600k house has lost, minimum 20% value. Now worth 480k, but you owe 650k and your loan has reset.

Double-whammy. Yeah. This is not going to end well.

[jpinpb]

Yes, us Piggs already knew about Alt-A and option ARMs and certainly Mr. Mortgage gave us the heads up, as well.

But for mainstream media to come out and announce it, gave new light.

I thought 60 minutes was great and the only problem I had w/it is that it did not fully explain the option ARMS.

From what I understand, you can choose to pay less than the actual monthly payment and whatever is left over that is due that you don’t pay is then tacked on to the actual loan amount.

So, if this is right, say you bought a 600k house and your payments, hypothetically, are 4k a month, but you’re only paying 2k a month, the remaining 2k is added to the loan amount of 600k.

This was attractive and not a concern for many, well, b/c real estate always appreciates.

So after 2 years of only paying 2k a month, means, quick math, almost 50k added to your loan of 600k.

Now to add insult to injury, your 600k house has lost, minimum 20% value. Now worth 480k, but you owe 650k and your loan has reset.

Double-whammy. Yeah. This is not going to end well.

[Author]

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