Effect of record low interest rates on Alt-A resets?

[no_such_reality]

Libor is low too, mid-2s. So with margin, overall looking around 5.25% or so.

The Alt-A killer on reset isn’t the reset, it’s the recast for the Option-ARMs when they lose their minimum payment option because they trip the cap.

Something like 2/3rds of the mortgage in SoCal in the last years of the bubble where option ARMS.

[DWCAP]

Refi’s work when you have cash or equity. You dont get to refi a house that you owe 750k on that is now worth 550k without money on the table.

So the Alt-A ARM’s from say late 03-now are underwater unless they threw down a real DP, and 4.5% fixed is a pipe dream for them. They will hold till interest rates go back up, then they will fold same as they would have anyways. That is unless the Fed manages to hold interst rates down to historical levels for the next decade or so to let wages catch up.

Basically they are just making you wait longer for your house.

[DWCAP]

Refi’s work when you have cash or equity. You dont get to refi a house that you owe 750k on that is now worth 550k without money on the table.

So the Alt-A ARM’s from say late 03-now are underwater unless they threw down a real DP, and 4.5% fixed is a pipe dream for them. They will hold till interest rates go back up, then they will fold same as they would have anyways. That is unless the Fed manages to hold interst rates down to historical levels for the next decade or so to let wages catch up.

Basically they are just making you wait longer for your house.

[DWCAP]

Refi’s work when you have cash or equity. You dont get to refi a house that you owe 750k on that is now worth 550k without money on the table.

So the Alt-A ARM’s from say late 03-now are underwater unless they threw down a real DP, and 4.5% fixed is a pipe dream for them. They will hold till interest rates go back up, then they will fold same as they would have anyways. That is unless the Fed manages to hold interst rates down to historical levels for the next decade or so to let wages catch up.

Basically they are just making you wait longer for your house.

[DWCAP]

Refi’s work when you have cash or equity. You dont get to refi a house that you owe 750k on that is now worth 550k without money on the table.

So the Alt-A ARM’s from say late 03-now are underwater unless they threw down a real DP, and 4.5% fixed is a pipe dream for them. They will hold till interest rates go back up, then they will fold same as they would have anyways. That is unless the Fed manages to hold interst rates down to historical levels for the next decade or so to let wages catch up.

Basically they are just making you wait longer for your house.

[DWCAP]

Refi’s work when you have cash or equity. You dont get to refi a house that you owe 750k on that is now worth 550k without money on the table.

So the Alt-A ARM’s from say late 03-now are underwater unless they threw down a real DP, and 4.5% fixed is a pipe dream for them. They will hold till interest rates go back up, then they will fold same as they would have anyways. That is unless the Fed manages to hold interst rates down to historical levels for the next decade or so to let wages catch up.

Basically they are just making you wait longer for your house.

[cabal]

A borrower who got a 3/5/7 yr fixed loan say in 2005 probably has a rate around 5.5%. Most of these loans are tied to the 1 yr treasury, which is about 0.5% today. The typical margin is 2.5%. If their fix rate were to convert to a fully adjustable loan today, it would be a nice xmas present as their rate would actually adjust down from 5.5% to 3%. The same is true for option arm loans which are tied to the MTA index currently around 2% resulting in a rate of 4.5% assuming 2.5% margin. The option arm loans allow for 4 payment options each month. Option 1 is neg amortization with 7.5% annual cap. Most people I know with these loans pay option 2, or interest only in order to keep principal in check. Option 3 & 4 are traditional 15 and 30 yr fully amortized payments.

We are in a deflationary period for the forseeable future. My guess is that the feds are not going to raise the rate for at least 1 yr, and then very slowly. Therefore the 2nd wave of loan resets to start in 2010 will ironically result in less defaults.

[cabal]

A borrower who got a 3/5/7 yr fixed loan say in 2005 probably has a rate around 5.5%. Most of these loans are tied to the 1 yr treasury, which is about 0.5% today. The typical margin is 2.5%. If their fix rate were to convert to a fully adjustable loan today, it would be a nice xmas present as their rate would actually adjust down from 5.5% to 3%. The same is true for option arm loans which are tied to the MTA index currently around 2% resulting in a rate of 4.5% assuming 2.5% margin. The option arm loans allow for 4 payment options each month. Option 1 is neg amortization with 7.5% annual cap. Most people I know with these loans pay option 2, or interest only in order to keep principal in check. Option 3 & 4 are traditional 15 and 30 yr fully amortized payments.

We are in a deflationary period for the forseeable future. My guess is that the feds are not going to raise the rate for at least 1 yr, and then very slowly. Therefore the 2nd wave of loan resets to start in 2010 will ironically result in less defaults.

[cabal]

A borrower who got a 3/5/7 yr fixed loan say in 2005 probably has a rate around 5.5%. Most of these loans are tied to the 1 yr treasury, which is about 0.5% today. The typical margin is 2.5%. If their fix rate were to convert to a fully adjustable loan today, it would be a nice xmas present as their rate would actually adjust down from 5.5% to 3%. The same is true for option arm loans which are tied to the MTA index currently around 2% resulting in a rate of 4.5% assuming 2.5% margin. The option arm loans allow for 4 payment options each month. Option 1 is neg amortization with 7.5% annual cap. Most people I know with these loans pay option 2, or interest only in order to keep principal in check. Option 3 & 4 are traditional 15 and 30 yr fully amortized payments.

We are in a deflationary period for the forseeable future. My guess is that the feds are not going to raise the rate for at least 1 yr, and then very slowly. Therefore the 2nd wave of loan resets to start in 2010 will ironically result in less defaults.

[cabal]

A borrower who got a 3/5/7 yr fixed loan say in 2005 probably has a rate around 5.5%. Most of these loans are tied to the 1 yr treasury, which is about 0.5% today. The typical margin is 2.5%. If their fix rate were to convert to a fully adjustable loan today, it would be a nice xmas present as their rate would actually adjust down from 5.5% to 3%. The same is true for option arm loans which are tied to the MTA index currently around 2% resulting in a rate of 4.5% assuming 2.5% margin. The option arm loans allow for 4 payment options each month. Option 1 is neg amortization with 7.5% annual cap. Most people I know with these loans pay option 2, or interest only in order to keep principal in check. Option 3 & 4 are traditional 15 and 30 yr fully amortized payments.

We are in a deflationary period for the forseeable future. My guess is that the feds are not going to raise the rate for at least 1 yr, and then very slowly. Therefore the 2nd wave of loan resets to start in 2010 will ironically result in less defaults.

[cabal]

A borrower who got a 3/5/7 yr fixed loan say in 2005 probably has a rate around 5.5%. Most of these loans are tied to the 1 yr treasury, which is about 0.5% today. The typical margin is 2.5%. If their fix rate were to convert to a fully adjustable loan today, it would be a nice xmas present as their rate would actually adjust down from 5.5% to 3%. The same is true for option arm loans which are tied to the MTA index currently around 2% resulting in a rate of 4.5% assuming 2.5% margin. The option arm loans allow for 4 payment options each month. Option 1 is neg amortization with 7.5% annual cap. Most people I know with these loans pay option 2, or interest only in order to keep principal in check. Option 3 & 4 are traditional 15 and 30 yr fully amortized payments.

We are in a deflationary period for the forseeable future. My guess is that the feds are not going to raise the rate for at least 1 yr, and then very slowly. Therefore the 2nd wave of loan resets to start in 2010 will ironically result in less defaults.

[Raybyrnes]

Tha makes sense but my understanding is that if you hit the 7.5 trigger with option 1 of the option arm it triggers a fully amortized payment which can increase the payment by up to 50%.

[Raybyrnes]

Tha makes sense but my understanding is that if you hit the 7.5 trigger with option 1 of the option arm it triggers a fully amortized payment which can increase the payment by up to 50%.

[Raybyrnes]

Tha makes sense but my understanding is that if you hit the 7.5 trigger with option 1 of the option arm it triggers a fully amortized payment which can increase the payment by up to 50%.

[Raybyrnes]

Tha makes sense but my understanding is that if you hit the 7.5 trigger with option 1 of the option arm it triggers a fully amortized payment which can increase the payment by up to 50%.

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