Negative Amortization and Interest Only: The Next Mortgage Bomb?

[patientlywaiting]

This an interesting article on the next mortgage bomb.

We had subprime, Alt-A, and AMR resets. But…

1) The negative amortization notes will soon hit maximum allowable loan balances and owners will have to start making fully amortized payments, or refinance.

2) The 5-year and 7-year interest only notes will soon have to be fully amortized or refinanced.

Refinance is almost out of the question because of declining values and stricter standards. That will mean big jumps in monthly payments for homeowners.

So after the ARMs resets, we then get hit with the negative amortization and interest only bomb. The housing market if far from out of the woods.

http://seekingalpha.com/article/46644-negative-amortization-and-interest-only-the-next-mortgage-bomb

[Sandi Egan]

I think neg-arms and all 5- and 7-years fall under Alt-A.

[Fearful]

Two different dimensions. Alt-A refers to the riskiness of the borrower, for example their lack of ability or inclination to document their income.

Negative amortization and other ARMs are possibly correlated to borrower riskiness, but not constrained to a specific borrower class.

[Author]

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