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

[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.

[(former)FormerSanDiegan]

[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.

[(former)FormerSanDiegan]

[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.

[(former)FormerSanDiegan]

[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.

[(former)FormerSanDiegan]

[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.

[(former)FormerSanDiegan]

[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.

[(former)FormerSanDiegan]

jpinpb – You are on the money with respect to Option ARMs. Increasing balance (negative amortization) kills. Those kinds of loans need cigarette label style warnings on them.

[(former)FormerSanDiegan]

jpinpb – You are on the money with respect to Option ARMs. Increasing balance (negative amortization) kills. Those kinds of loans need cigarette label style warnings on them.

[(former)FormerSanDiegan]

jpinpb – You are on the money with respect to Option ARMs. Increasing balance (negative amortization) kills. Those kinds of loans need cigarette label style warnings on them.

[(former)FormerSanDiegan]

jpinpb – You are on the money with respect to Option ARMs. Increasing balance (negative amortization) kills. Those kinds of loans need cigarette label style warnings on them.

[(former)FormerSanDiegan]

jpinpb – You are on the money with respect to Option ARMs. Increasing balance (negative amortization) kills. Those kinds of loans need cigarette label style warnings on them.

[DWCAP]

What I want to know is how this unwinds. How does this all go when we end the total recession and start to recover?

Lets say things go bad for the next 9 months. That puts us to September 09. The FED stimulates us out of this recession using unusual methods and unheard of rates to get people buying houses again. Unemployment is bad for another year or so after that, but GDP starts growing again in Q3. Inflation will start slamming the economy as all this “stimulus” sets in and the FED starts raising rates to control the inflation and stops “stimulating” to limit the damage this kinda “financial planning” can do.

Then what? Rates go up, and lending slows, reducing affordability and housing values? This loss of value starts putting people who were unable to refi cause they were horribly underwater but survived cause of the low low rates into foreclosure. Foreclosures rise again, hitting housing values, putting more people under water. Values fall until back in line with fundamentals, and if history is any guide alittle lower. People with good credit and the ability to pay get affordable payments, everyone else gets to rent.

What have we gained again?

[DWCAP]

What I want to know is how this unwinds. How does this all go when we end the total recession and start to recover?

Lets say things go bad for the next 9 months. That puts us to September 09. The FED stimulates us out of this recession using unusual methods and unheard of rates to get people buying houses again. Unemployment is bad for another year or so after that, but GDP starts growing again in Q3. Inflation will start slamming the economy as all this “stimulus” sets in and the FED starts raising rates to control the inflation and stops “stimulating” to limit the damage this kinda “financial planning” can do.

Then what? Rates go up, and lending slows, reducing affordability and housing values? This loss of value starts putting people who were unable to refi cause they were horribly underwater but survived cause of the low low rates into foreclosure. Foreclosures rise again, hitting housing values, putting more people under water. Values fall until back in line with fundamentals, and if history is any guide alittle lower. People with good credit and the ability to pay get affordable payments, everyone else gets to rent.

What have we gained again?

[DWCAP]

What I want to know is how this unwinds. How does this all go when we end the total recession and start to recover?

Lets say things go bad for the next 9 months. That puts us to September 09. The FED stimulates us out of this recession using unusual methods and unheard of rates to get people buying houses again. Unemployment is bad for another year or so after that, but GDP starts growing again in Q3. Inflation will start slamming the economy as all this “stimulus” sets in and the FED starts raising rates to control the inflation and stops “stimulating” to limit the damage this kinda “financial planning” can do.

Then what? Rates go up, and lending slows, reducing affordability and housing values? This loss of value starts putting people who were unable to refi cause they were horribly underwater but survived cause of the low low rates into foreclosure. Foreclosures rise again, hitting housing values, putting more people under water. Values fall until back in line with fundamentals, and if history is any guide alittle lower. People with good credit and the ability to pay get affordable payments, everyone else gets to rent.

What have we gained again?

[DWCAP]

What I want to know is how this unwinds. How does this all go when we end the total recession and start to recover?

Lets say things go bad for the next 9 months. That puts us to September 09. The FED stimulates us out of this recession using unusual methods and unheard of rates to get people buying houses again. Unemployment is bad for another year or so after that, but GDP starts growing again in Q3. Inflation will start slamming the economy as all this “stimulus” sets in and the FED starts raising rates to control the inflation and stops “stimulating” to limit the damage this kinda “financial planning” can do.

Then what? Rates go up, and lending slows, reducing affordability and housing values? This loss of value starts putting people who were unable to refi cause they were horribly underwater but survived cause of the low low rates into foreclosure. Foreclosures rise again, hitting housing values, putting more people under water. Values fall until back in line with fundamentals, and if history is any guide alittle lower. People with good credit and the ability to pay get affordable payments, everyone else gets to rent.

What have we gained again?

[Author]

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