>1% interest SPIKE = 10% house price drop?

[bearishgurl]

[quote=FormerSanDiegan]Sure, the resets of 2-year teaser rates in the sub-prime category was the initial trigger. The rest of the decline is due to “gravity.” (prices falling to levels more in line with fundamentals).

During the adjustment period (reversion to the mean) from 2007 to 2010 or so, rates declined precipitously but housing prices declined as well. Obviously the force of gravity outweighed changes in rates during that time.

The answer to the original quesiton of this thread “>1% interest SPIKE = 10% house price drop? ” is “NO.” I think we can also agree on that.[/quote]

Agree that mortgage rates and housing prices do not necessarily correlate, FSD. However, I want to add that I recently read somewhere (yahoo?) that about 450,000 of Prime and Alt-A Option ARM mortgages made nationwide between about 1988 and 2002 (with potential neg-am features) are still performing and amortizing today.

Their “neg-am feature” is only a “villain” if the borrow chose it to be. Option ARMS initially had four options for the first five years. It is only the ignorant or short-sighted borrower who “chose” Option 1 or 2 every month and ended up with a payoff over the 125% threshold where the “neg am” feature kicked in at adjustment time.

The Option ARM mortgages are not the culprit here. They were excellent loan products (previously costing $1200 to $2800 to close) and are fully assumable (to later qualifying buyers) for a $50 to $500 fee. The borrowers were the problem which caused these mortgages to explode. In CA, the current 11D rate (of the FHLBB) for these mortgages is 4.258% for borrowers with a “typical” 2.75% margin who consistently chose Option 3 (the “fully amortizing rate”).

I have had several “Option ARMS,” currently have one and always chose Option 3 for the first five years. If these mortgages were still available, I would choose one again if its features were the same as my previous loans. And I am a “prime” borrower with a FICO score over 800 who would obtensibly have “choices” in life :=]

[(former)FormerSanDiegan]

BG – Agreed One of the factors in recent years wrt ARMs was the abuse of no-doc loans. Not necessarily the other features of these.
BTW, I also had an interest-only ARM that originated in 2002. It is not one of the 450,000 performing loans you cite (No I didn’t default, I refinanced into a 30-yr fixed).

Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.

[(former)FormerSanDiegan]

BG – Agreed One of the factors in recent years wrt ARMs was the abuse of no-doc loans. Not necessarily the other features of these.
BTW, I also had an interest-only ARM that originated in 2002. It is not one of the 450,000 performing loans you cite (No I didn’t default, I refinanced into a 30-yr fixed).

Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.

[(former)FormerSanDiegan]

BG – Agreed One of the factors in recent years wrt ARMs was the abuse of no-doc loans. Not necessarily the other features of these.
BTW, I also had an interest-only ARM that originated in 2002. It is not one of the 450,000 performing loans you cite (No I didn’t default, I refinanced into a 30-yr fixed).

Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.

[(former)FormerSanDiegan]

BG – Agreed One of the factors in recent years wrt ARMs was the abuse of no-doc loans. Not necessarily the other features of these.
BTW, I also had an interest-only ARM that originated in 2002. It is not one of the 450,000 performing loans you cite (No I didn’t default, I refinanced into a 30-yr fixed).

Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.

[(former)FormerSanDiegan]

BG – Agreed One of the factors in recent years wrt ARMs was the abuse of no-doc loans. Not necessarily the other features of these.
BTW, I also had an interest-only ARM that originated in 2002. It is not one of the 450,000 performing loans you cite (No I didn’t default, I refinanced into a 30-yr fixed).

Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.

[bearishgurl]

[quote=FormerSanDiegan] . . . Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.[/quote]

Yes, concur, FSD. Most of these loans were made INSIDE the bank by the bank’s OWN employed loan officers (in SD: Home Savings, Great Western, Downey, World Savings, Security Pacific, etc), who were the “direct lenders.” Now most of these remaining mortgages have been “inherited” by the few current “Big Banks,” lol. Disclosures for these mortgages indicated that 100% of them were kept AND serviced by the actual lending bank and were never sold on the secondary market. In addition, they had certain (very straightforward) rules and features, listed here in no particular order:

-1 to 4 residential units
-20% down was usually mandatory;
-PMI was not prevalent;
-no impound services were available;
-1st TD’s only;
-pre-approval letter issued to buyer by bank’s local underwriter within a week AFTER qualification process and $40 fee pd (for credit report);
-qualifying ratios used the current fully-amortized payment (Option 3);
-11D program adj monthly and the 1YR T-bill adj once annually (after initial 3 mo “teaser” period);
-teaser rate applied for first month only (11D) or first 3 mos (1 yr T-bill);
-margins 2.4% – 2.75%;
-recast performed by bank if/when mtg balance hits 125% of orig value;
-reset on 1YR T-Bill program to occur ONLY on adj date;
-mortgage payment could be made at any branch teller counter ON the last business day occurring up to 15 days after due and avoid the late charge;
-fairly strict front end/back end qualifying ratios of 29/41;
-prime and alt-A only (after credit scores became avail, about 727 was the lowest accepted, under certain conditions);
-no tax-return submission needed;
-21-30 day closing;
-verification of employment/income/funds on hand performed twice, at opening of escrow and right before COE;
-no prepayment penalty or owner-occupancy requirements;
-borrower’s choice of paying on 1st or 15th of the month;
-doc drawing fee $150, free if redraw due to errors;
-no alienation clause, fully assumable to “qualifying” borrowers for a set small “assumption fee”
-no “garbage” charges
-very often no “origination fee”
-no appraisal fee (banks owned appraisal and borrower couldn’t see unless property didn’t appraise), appraisers directly employed by bank;
-and, of course, no interest buy-down (points) or “lock-in” fees.

Applying for and closing one of these RE mtgs back then was easy, breezy, professional, fast and cheap. They were manually underwritten by a local banker (who could make decisions locally). In the vast majority of cases, the closing docs were drawn very clean with ZERO surprises.

Borrowers in Option ARM programs during this era qualified for these mortgages at a “fully-amortized rate” of about 6.7% to about 10.8%. Of course, since the COF index has really dipped in recent years, those that still have these mortgages are along for the ride 🙂

Note: In this (now defunct) “lending model,” you didn’t see the rampant incompetency and confusion displayed by mortgage lenders today.

[bearishgurl]

[quote=FormerSanDiegan] . . . Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.[/quote]

Yes, concur, FSD. Most of these loans were made INSIDE the bank by the bank’s OWN employed loan officers (in SD: Home Savings, Great Western, Downey, World Savings, Security Pacific, etc), who were the “direct lenders.” Now most of these remaining mortgages have been “inherited” by the few current “Big Banks,” lol. Disclosures for these mortgages indicated that 100% of them were kept AND serviced by the actual lending bank and were never sold on the secondary market. In addition, they had certain (very straightforward) rules and features, listed here in no particular order:

-1 to 4 residential units
-20% down was usually mandatory;
-PMI was not prevalent;
-no impound services were available;
-1st TD’s only;
-pre-approval letter issued to buyer by bank’s local underwriter within a week AFTER qualification process and $40 fee pd (for credit report);
-qualifying ratios used the current fully-amortized payment (Option 3);
-11D program adj monthly and the 1YR T-bill adj once annually (after initial 3 mo “teaser” period);
-teaser rate applied for first month only (11D) or first 3 mos (1 yr T-bill);
-margins 2.4% – 2.75%;
-recast performed by bank if/when mtg balance hits 125% of orig value;
-reset on 1YR T-Bill program to occur ONLY on adj date;
-mortgage payment could be made at any branch teller counter ON the last business day occurring up to 15 days after due and avoid the late charge;
-fairly strict front end/back end qualifying ratios of 29/41;
-prime and alt-A only (after credit scores became avail, about 727 was the lowest accepted, under certain conditions);
-no tax-return submission needed;
-21-30 day closing;
-verification of employment/income/funds on hand performed twice, at opening of escrow and right before COE;
-no prepayment penalty or owner-occupancy requirements;
-borrower’s choice of paying on 1st or 15th of the month;
-doc drawing fee $150, free if redraw due to errors;
-no alienation clause, fully assumable to “qualifying” borrowers for a set small “assumption fee”
-no “garbage” charges
-very often no “origination fee”
-no appraisal fee (banks owned appraisal and borrower couldn’t see unless property didn’t appraise), appraisers directly employed by bank;
-and, of course, no interest buy-down (points) or “lock-in” fees.

Applying for and closing one of these RE mtgs back then was easy, breezy, professional, fast and cheap. They were manually underwritten by a local banker (who could make decisions locally). In the vast majority of cases, the closing docs were drawn very clean with ZERO surprises.

Borrowers in Option ARM programs during this era qualified for these mortgages at a “fully-amortized rate” of about 6.7% to about 10.8%. Of course, since the COF index has really dipped in recent years, those that still have these mortgages are along for the ride 🙂

Note: In this (now defunct) “lending model,” you didn’t see the rampant incompetency and confusion displayed by mortgage lenders today.

[bearishgurl]

[quote=FormerSanDiegan] . . . Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.[/quote]

Yes, concur, FSD. Most of these loans were made INSIDE the bank by the bank’s OWN employed loan officers (in SD: Home Savings, Great Western, Downey, World Savings, Security Pacific, etc), who were the “direct lenders.” Now most of these remaining mortgages have been “inherited” by the few current “Big Banks,” lol. Disclosures for these mortgages indicated that 100% of them were kept AND serviced by the actual lending bank and were never sold on the secondary market. In addition, they had certain (very straightforward) rules and features, listed here in no particular order:

-1 to 4 residential units
-20% down was usually mandatory;
-PMI was not prevalent;
-no impound services were available;
-1st TD’s only;
-pre-approval letter issued to buyer by bank’s local underwriter within a week AFTER qualification process and $40 fee pd (for credit report);
-qualifying ratios used the current fully-amortized payment (Option 3);
-11D program adj monthly and the 1YR T-bill adj once annually (after initial 3 mo “teaser” period);
-teaser rate applied for first month only (11D) or first 3 mos (1 yr T-bill);
-margins 2.4% – 2.75%;
-recast performed by bank if/when mtg balance hits 125% of orig value;
-reset on 1YR T-Bill program to occur ONLY on adj date;
-mortgage payment could be made at any branch teller counter ON the last business day occurring up to 15 days after due and avoid the late charge;
-fairly strict front end/back end qualifying ratios of 29/41;
-prime and alt-A only (after credit scores became avail, about 727 was the lowest accepted, under certain conditions);
-no tax-return submission needed;
-21-30 day closing;
-verification of employment/income/funds on hand performed twice, at opening of escrow and right before COE;
-no prepayment penalty or owner-occupancy requirements;
-borrower’s choice of paying on 1st or 15th of the month;
-doc drawing fee $150, free if redraw due to errors;
-no alienation clause, fully assumable to “qualifying” borrowers for a set small “assumption fee”
-no “garbage” charges
-very often no “origination fee”
-no appraisal fee (banks owned appraisal and borrower couldn’t see unless property didn’t appraise), appraisers directly employed by bank;
-and, of course, no interest buy-down (points) or “lock-in” fees.

Applying for and closing one of these RE mtgs back then was easy, breezy, professional, fast and cheap. They were manually underwritten by a local banker (who could make decisions locally). In the vast majority of cases, the closing docs were drawn very clean with ZERO surprises.

Borrowers in Option ARM programs during this era qualified for these mortgages at a “fully-amortized rate” of about 6.7% to about 10.8%. Of course, since the COF index has really dipped in recent years, those that still have these mortgages are along for the ride 🙂

Note: In this (now defunct) “lending model,” you didn’t see the rampant incompetency and confusion displayed by mortgage lenders today.

[bearishgurl]

[quote=FormerSanDiegan] . . . Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.[/quote]

Yes, concur, FSD. Most of these loans were made INSIDE the bank by the bank’s OWN employed loan officers (in SD: Home Savings, Great Western, Downey, World Savings, Security Pacific, etc), who were the “direct lenders.” Now most of these remaining mortgages have been “inherited” by the few current “Big Banks,” lol. Disclosures for these mortgages indicated that 100% of them were kept AND serviced by the actual lending bank and were never sold on the secondary market. In addition, they had certain (very straightforward) rules and features, listed here in no particular order:

-1 to 4 residential units
-20% down was usually mandatory;
-PMI was not prevalent;
-no impound services were available;
-1st TD’s only;
-pre-approval letter issued to buyer by bank’s local underwriter within a week AFTER qualification process and $40 fee pd (for credit report);
-qualifying ratios used the current fully-amortized payment (Option 3);
-11D program adj monthly and the 1YR T-bill adj once annually (after initial 3 mo “teaser” period);
-teaser rate applied for first month only (11D) or first 3 mos (1 yr T-bill);
-margins 2.4% – 2.75%;
-recast performed by bank if/when mtg balance hits 125% of orig value;
-reset on 1YR T-Bill program to occur ONLY on adj date;
-mortgage payment could be made at any branch teller counter ON the last business day occurring up to 15 days after due and avoid the late charge;
-fairly strict front end/back end qualifying ratios of 29/41;
-prime and alt-A only (after credit scores became avail, about 727 was the lowest accepted, under certain conditions);
-no tax-return submission needed;
-21-30 day closing;
-verification of employment/income/funds on hand performed twice, at opening of escrow and right before COE;
-no prepayment penalty or owner-occupancy requirements;
-borrower’s choice of paying on 1st or 15th of the month;
-doc drawing fee $150, free if redraw due to errors;
-no alienation clause, fully assumable to “qualifying” borrowers for a set small “assumption fee”
-no “garbage” charges
-very often no “origination fee”
-no appraisal fee (banks owned appraisal and borrower couldn’t see unless property didn’t appraise), appraisers directly employed by bank;
-and, of course, no interest buy-down (points) or “lock-in” fees.

Applying for and closing one of these RE mtgs back then was easy, breezy, professional, fast and cheap. They were manually underwritten by a local banker (who could make decisions locally). In the vast majority of cases, the closing docs were drawn very clean with ZERO surprises.

Borrowers in Option ARM programs during this era qualified for these mortgages at a “fully-amortized rate” of about 6.7% to about 10.8%. Of course, since the COF index has really dipped in recent years, those that still have these mortgages are along for the ride 🙂

Note: In this (now defunct) “lending model,” you didn’t see the rampant incompetency and confusion displayed by mortgage lenders today.

[bearishgurl]

[quote=FormerSanDiegan] . . . Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.[/quote]

Yes, concur, FSD. Most of these loans were made INSIDE the bank by the bank’s OWN employed loan officers (in SD: Home Savings, Great Western, Downey, World Savings, Security Pacific, etc), who were the “direct lenders.” Now most of these remaining mortgages have been “inherited” by the few current “Big Banks,” lol. Disclosures for these mortgages indicated that 100% of them were kept AND serviced by the actual lending bank and were never sold on the secondary market. In addition, they had certain (very straightforward) rules and features, listed here in no particular order:

-1 to 4 residential units
-20% down was usually mandatory;
-PMI was not prevalent;
-no impound services were available;
-1st TD’s only;
-pre-approval letter issued to buyer by bank’s local underwriter within a week AFTER qualification process and $40 fee pd (for credit report);
-qualifying ratios used the current fully-amortized payment (Option 3);
-11D program adj monthly and the 1YR T-bill adj once annually (after initial 3 mo “teaser” period);
-teaser rate applied for first month only (11D) or first 3 mos (1 yr T-bill);
-margins 2.4% – 2.75%;
-recast performed by bank if/when mtg balance hits 125% of orig value;
-reset on 1YR T-Bill program to occur ONLY on adj date;
-mortgage payment could be made at any branch teller counter ON the last business day occurring up to 15 days after due and avoid the late charge;
-fairly strict front end/back end qualifying ratios of 29/41;
-prime and alt-A only (after credit scores became avail, about 727 was the lowest accepted, under certain conditions);
-no tax-return submission needed;
-21-30 day closing;
-verification of employment/income/funds on hand performed twice, at opening of escrow and right before COE;
-no prepayment penalty or owner-occupancy requirements;
-borrower’s choice of paying on 1st or 15th of the month;
-doc drawing fee $150, free if redraw due to errors;
-no alienation clause, fully assumable to “qualifying” borrowers for a set small “assumption fee”
-no “garbage” charges
-very often no “origination fee”
-no appraisal fee (banks owned appraisal and borrower couldn’t see unless property didn’t appraise), appraisers directly employed by bank;
-and, of course, no interest buy-down (points) or “lock-in” fees.

Applying for and closing one of these RE mtgs back then was easy, breezy, professional, fast and cheap. They were manually underwritten by a local banker (who could make decisions locally). In the vast majority of cases, the closing docs were drawn very clean with ZERO surprises.

Borrowers in Option ARM programs during this era qualified for these mortgages at a “fully-amortized rate” of about 6.7% to about 10.8%. Of course, since the COF index has really dipped in recent years, those that still have these mortgages are along for the ride 🙂

Note: In this (now defunct) “lending model,” you didn’t see the rampant incompetency and confusion displayed by mortgage lenders today.

[Author]

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