Option ARMs & Alt-A resets

[(former)FormerSanDiegan]

This is an option ARM chart. Not Alt-A.

Some people have a hard time distinguishing these. I blame Mr Mortgage because when he talks about alt-A he focuses on the subset of alt-A that includes option ARMs

Some portion of alt-A loans are option ARMs, but the alt-A universe also includes fixed rate loans, 5/1 ARMs, 5/1 I/O ARMS, etc…

[(former)FormerSanDiegan]

I believe that folks with option ARMs are toast.

However, fate of the remaining alt-A loans and prime loans with resets in between now and 2011 will depend on rates.

The typical alt-A 5/1 loan originated in 2005 for example had a start rate of between 5.5 to 6%, fixed for 5 years. These are tied to an index and will reset at that index, plus a margin.
Typical index is the 12-months LIBOR. Margin of 2.25 to 2.5%.

Based on current 12-month LIBOR index, these would reset to the 12-month LIBOR plus 2.25 to 2.5 %, which would put them at 5.75 to 6%.

Outside of the option ARMS, the rate itself and even the inclusion of principal is not enough to trigger rampant defaults. I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.

[(former)FormerSanDiegan]

I believe that folks with option ARMs are toast.

However, fate of the remaining alt-A loans and prime loans with resets in between now and 2011 will depend on rates.

The typical alt-A 5/1 loan originated in 2005 for example had a start rate of between 5.5 to 6%, fixed for 5 years. These are tied to an index and will reset at that index, plus a margin.
Typical index is the 12-months LIBOR. Margin of 2.25 to 2.5%.

Based on current 12-month LIBOR index, these would reset to the 12-month LIBOR plus 2.25 to 2.5 %, which would put them at 5.75 to 6%.

Outside of the option ARMS, the rate itself and even the inclusion of principal is not enough to trigger rampant defaults. I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.

[(former)FormerSanDiegan]

I believe that folks with option ARMs are toast.

However, fate of the remaining alt-A loans and prime loans with resets in between now and 2011 will depend on rates.

The typical alt-A 5/1 loan originated in 2005 for example had a start rate of between 5.5 to 6%, fixed for 5 years. These are tied to an index and will reset at that index, plus a margin.
Typical index is the 12-months LIBOR. Margin of 2.25 to 2.5%.

Based on current 12-month LIBOR index, these would reset to the 12-month LIBOR plus 2.25 to 2.5 %, which would put them at 5.75 to 6%.

Outside of the option ARMS, the rate itself and even the inclusion of principal is not enough to trigger rampant defaults. I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.

[(former)FormerSanDiegan]

I believe that folks with option ARMs are toast.

However, fate of the remaining alt-A loans and prime loans with resets in between now and 2011 will depend on rates.

The typical alt-A 5/1 loan originated in 2005 for example had a start rate of between 5.5 to 6%, fixed for 5 years. These are tied to an index and will reset at that index, plus a margin.
Typical index is the 12-months LIBOR. Margin of 2.25 to 2.5%.

Based on current 12-month LIBOR index, these would reset to the 12-month LIBOR plus 2.25 to 2.5 %, which would put them at 5.75 to 6%.

Outside of the option ARMS, the rate itself and even the inclusion of principal is not enough to trigger rampant defaults. I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.

[(former)FormerSanDiegan]

I believe that folks with option ARMs are toast.

However, fate of the remaining alt-A loans and prime loans with resets in between now and 2011 will depend on rates.

The typical alt-A 5/1 loan originated in 2005 for example had a start rate of between 5.5 to 6%, fixed for 5 years. These are tied to an index and will reset at that index, plus a margin.
Typical index is the 12-months LIBOR. Margin of 2.25 to 2.5%.

Based on current 12-month LIBOR index, these would reset to the 12-month LIBOR plus 2.25 to 2.5 %, which would put them at 5.75 to 6%.

Outside of the option ARMS, the rate itself and even the inclusion of principal is not enough to trigger rampant defaults. I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.

[34f3f3f]

[quote=FormerSanDiegan]
I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.
[/quote]

This makes sense, but how big of a problem is option ARMs going to be for banks. If toxic subprime loans caused lending to seize up, what is the effect of option ARMs going to be, assuming that it hasn’t already been effecting things?

[34f3f3f]

[quote=FormerSanDiegan]
I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.
[/quote]

This makes sense, but how big of a problem is option ARMs going to be for banks. If toxic subprime loans caused lending to seize up, what is the effect of option ARMs going to be, assuming that it hasn’t already been effecting things?

[34f3f3f]

[quote=FormerSanDiegan]
I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.
[/quote]

This makes sense, but how big of a problem is option ARMs going to be for banks. If toxic subprime loans caused lending to seize up, what is the effect of option ARMs going to be, assuming that it hasn’t already been effecting things?

[34f3f3f]

[quote=FormerSanDiegan]
I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.
[/quote]

This makes sense, but how big of a problem is option ARMs going to be for banks. If toxic subprime loans caused lending to seize up, what is the effect of option ARMs going to be, assuming that it hasn’t already been effecting things?

[34f3f3f]

[quote=FormerSanDiegan]
I don’t think resets by themselves outside of the option ARMS are going to be as much of a factor as the fact that property values have declined to the point where the owner is underwater.
[/quote]

This makes sense, but how big of a problem is option ARMs going to be for banks. If toxic subprime loans caused lending to seize up, what is the effect of option ARMs going to be, assuming that it hasn’t already been effecting things?

[capeman]

Yeah but if you integrate the Alt-A chart and subtract out the Option Arm chart you get the Option Arms being about 50% of the total products resetting at EOY 2011. That means roughly 50% of the big chart is on the accelerated schedule…. that’s devastating and may mean even another equally large wave is coming after the end of next year. Bye bye housing.

[capeman]

Yeah but if you integrate the Alt-A chart and subtract out the Option Arm chart you get the Option Arms being about 50% of the total products resetting at EOY 2011. That means roughly 50% of the big chart is on the accelerated schedule…. that’s devastating and may mean even another equally large wave is coming after the end of next year. Bye bye housing.

[capeman]

Yeah but if you integrate the Alt-A chart and subtract out the Option Arm chart you get the Option Arms being about 50% of the total products resetting at EOY 2011. That means roughly 50% of the big chart is on the accelerated schedule…. that’s devastating and may mean even another equally large wave is coming after the end of next year. Bye bye housing.

[capeman]

Yeah but if you integrate the Alt-A chart and subtract out the Option Arm chart you get the Option Arms being about 50% of the total products resetting at EOY 2011. That means roughly 50% of the big chart is on the accelerated schedule…. that’s devastating and may mean even another equally large wave is coming after the end of next year. Bye bye housing.

[Author]

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