questioning the option arm timebomb thesis

[Rich Toscano]

This is a topic we’ve revisited many times, but i ran across this article and thought i’d add it to the mix:

http://www.fixedincomecolor.com/articles/mortgage-mbs/303-option-arms-and-the-qtime-bombq

This is someone else implying that there is more nuance than the credit suisse charts (or the “option arm timebomb” moniker) would suggest.

I don’t really have the data or knowledge to agree or disagree with this guy, but at least it looks like he is using data.

Thought i’d pass it along…

rich

[SD Transplant]

Thanks Rich. Great article.

I was looking for something to support my own anecdotal evidence vis-a-vis ARM resets modifications & help under HAMP. From the anecdotal data HAMP is a complete failure.

Last weekend, I was at the BBQ party where 2 friends work for one of the bigger banks (one a VP and other a negotiator). The negotiator, who worked also a RE broker in the boom days, assured my wife that the market will only get uglier next year, or later, whenever the banks will decide what to do w/ the assets of all these unqualified ARM victims (I mean investors).

According to her, in a typical day she processes about 10 cases (specifically assign to the HAMP program to qualify ARM reset victims). A good day equals having max 2 out of 10 cases qualify based on income for HAMP. So, my anecdotal data shows a failure rate of 80% under the HAMP. Based on the other blog articles read lately, CHASE and B of A have an even higher failure amount for ARM recasts victims to qualify under HAMP.

The negotiator’s question was……………….what would banks do with assets when Govt. help programs in place stop? I know the answer is……………….EXTEND THEM (but at some point things will have to be passed back to the private sector)…..the key is WHEN

[SD Transplant]

Thanks Rich. Great article.

I was looking for something to support my own anecdotal evidence vis-a-vis ARM resets modifications & help under HAMP. From the anecdotal data HAMP is a complete failure.

Last weekend, I was at the BBQ party where 2 friends work for one of the bigger banks (one a VP and other a negotiator). The negotiator, who worked also a RE broker in the boom days, assured my wife that the market will only get uglier next year, or later, whenever the banks will decide what to do w/ the assets of all these unqualified ARM victims (I mean investors).

According to her, in a typical day she processes about 10 cases (specifically assign to the HAMP program to qualify ARM reset victims). A good day equals having max 2 out of 10 cases qualify based on income for HAMP. So, my anecdotal data shows a failure rate of 80% under the HAMP. Based on the other blog articles read lately, CHASE and B of A have an even higher failure amount for ARM recasts victims to qualify under HAMP.

The negotiator’s question was……………….what would banks do with assets when Govt. help programs in place stop? I know the answer is……………….EXTEND THEM (but at some point things will have to be passed back to the private sector)…..the key is WHEN

[SD Transplant]

Thanks Rich. Great article.

I was looking for something to support my own anecdotal evidence vis-a-vis ARM resets modifications & help under HAMP. From the anecdotal data HAMP is a complete failure.

Last weekend, I was at the BBQ party where 2 friends work for one of the bigger banks (one a VP and other a negotiator). The negotiator, who worked also a RE broker in the boom days, assured my wife that the market will only get uglier next year, or later, whenever the banks will decide what to do w/ the assets of all these unqualified ARM victims (I mean investors).

According to her, in a typical day she processes about 10 cases (specifically assign to the HAMP program to qualify ARM reset victims). A good day equals having max 2 out of 10 cases qualify based on income for HAMP. So, my anecdotal data shows a failure rate of 80% under the HAMP. Based on the other blog articles read lately, CHASE and B of A have an even higher failure amount for ARM recasts victims to qualify under HAMP.

The negotiator’s question was……………….what would banks do with assets when Govt. help programs in place stop? I know the answer is……………….EXTEND THEM (but at some point things will have to be passed back to the private sector)…..the key is WHEN

[SD Transplant]

Thanks Rich. Great article.

I was looking for something to support my own anecdotal evidence vis-a-vis ARM resets modifications & help under HAMP. From the anecdotal data HAMP is a complete failure.

Last weekend, I was at the BBQ party where 2 friends work for one of the bigger banks (one a VP and other a negotiator). The negotiator, who worked also a RE broker in the boom days, assured my wife that the market will only get uglier next year, or later, whenever the banks will decide what to do w/ the assets of all these unqualified ARM victims (I mean investors).

According to her, in a typical day she processes about 10 cases (specifically assign to the HAMP program to qualify ARM reset victims). A good day equals having max 2 out of 10 cases qualify based on income for HAMP. So, my anecdotal data shows a failure rate of 80% under the HAMP. Based on the other blog articles read lately, CHASE and B of A have an even higher failure amount for ARM recasts victims to qualify under HAMP.

The negotiator’s question was……………….what would banks do with assets when Govt. help programs in place stop? I know the answer is……………….EXTEND THEM (but at some point things will have to be passed back to the private sector)…..the key is WHEN

[SD Transplant]

Thanks Rich. Great article.

I was looking for something to support my own anecdotal evidence vis-a-vis ARM resets modifications & help under HAMP. From the anecdotal data HAMP is a complete failure.

Last weekend, I was at the BBQ party where 2 friends work for one of the bigger banks (one a VP and other a negotiator). The negotiator, who worked also a RE broker in the boom days, assured my wife that the market will only get uglier next year, or later, whenever the banks will decide what to do w/ the assets of all these unqualified ARM victims (I mean investors).

According to her, in a typical day she processes about 10 cases (specifically assign to the HAMP program to qualify ARM reset victims). A good day equals having max 2 out of 10 cases qualify based on income for HAMP. So, my anecdotal data shows a failure rate of 80% under the HAMP. Based on the other blog articles read lately, CHASE and B of A have an even higher failure amount for ARM recasts victims to qualify under HAMP.

The negotiator’s question was……………….what would banks do with assets when Govt. help programs in place stop? I know the answer is……………….EXTEND THEM (but at some point things will have to be passed back to the private sector)…..the key is WHEN

[sdrealtor]

I think the 1st responder to this article missed the point. Loan Mods may not even be necessary for most of these folks. It sounds that by lowering the Fed Funds rate to 0 they may have helped dodge this bullet. So even at the low teaser rates under 2% alot of these loans were not negatively amortizing. That is a stunning development. Borrowers paying 1.5% rates are effectively over paying. LOL….who woulda thunk it.

“Few OAs are currently near the 115% negative amortization threshold, since the steady decline in MTA (to its current 0.48%) has allowed most OAs to positively amortize even when minimum payments are made.”

It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.

[sdrealtor]

I think the 1st responder to this article missed the point. Loan Mods may not even be necessary for most of these folks. It sounds that by lowering the Fed Funds rate to 0 they may have helped dodge this bullet. So even at the low teaser rates under 2% alot of these loans were not negatively amortizing. That is a stunning development. Borrowers paying 1.5% rates are effectively over paying. LOL….who woulda thunk it.

“Few OAs are currently near the 115% negative amortization threshold, since the steady decline in MTA (to its current 0.48%) has allowed most OAs to positively amortize even when minimum payments are made.”

It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.

[sdrealtor]

I think the 1st responder to this article missed the point. Loan Mods may not even be necessary for most of these folks. It sounds that by lowering the Fed Funds rate to 0 they may have helped dodge this bullet. So even at the low teaser rates under 2% alot of these loans were not negatively amortizing. That is a stunning development. Borrowers paying 1.5% rates are effectively over paying. LOL….who woulda thunk it.

“Few OAs are currently near the 115% negative amortization threshold, since the steady decline in MTA (to its current 0.48%) has allowed most OAs to positively amortize even when minimum payments are made.”

It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.

[sdrealtor]

I think the 1st responder to this article missed the point. Loan Mods may not even be necessary for most of these folks. It sounds that by lowering the Fed Funds rate to 0 they may have helped dodge this bullet. So even at the low teaser rates under 2% alot of these loans were not negatively amortizing. That is a stunning development. Borrowers paying 1.5% rates are effectively over paying. LOL….who woulda thunk it.

“Few OAs are currently near the 115% negative amortization threshold, since the steady decline in MTA (to its current 0.48%) has allowed most OAs to positively amortize even when minimum payments are made.”

It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.

[sdrealtor]

I think the 1st responder to this article missed the point. Loan Mods may not even be necessary for most of these folks. It sounds that by lowering the Fed Funds rate to 0 they may have helped dodge this bullet. So even at the low teaser rates under 2% alot of these loans were not negatively amortizing. That is a stunning development. Borrowers paying 1.5% rates are effectively over paying. LOL….who woulda thunk it.

“Few OAs are currently near the 115% negative amortization threshold, since the steady decline in MTA (to its current 0.48%) has allowed most OAs to positively amortize even when minimum payments are made.”

It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.

[Diego Mamani]

[quote=sdrealtor]It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.[/quote]

I think the 2nd responder missed a crucial point here. The original article mentions one real danger other than loss of employment: overstated income at the time the original loan was written. Some originators had as much as 80% of loans in the “liar loan” category.

So… if a borrower was barely making her (inflated) monthly payments, even a small payment “shock” could end up being rather shocking indeed.

[Where are the new words “alot” and “beleived” coming from?]

[Diego Mamani]

[quote=sdrealtor]It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.[/quote]

I think the 2nd responder missed a crucial point here. The original article mentions one real danger other than loss of employment: overstated income at the time the original loan was written. Some originators had as much as 80% of loans in the “liar loan” category.

So… if a borrower was barely making her (inflated) monthly payments, even a small payment “shock” could end up being rather shocking indeed.

[Where are the new words “alot” and “beleived” coming from?]

[Diego Mamani]

[quote=sdrealtor]It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.[/quote]

I think the 2nd responder missed a crucial point here. The original article mentions one real danger other than loss of employment: overstated income at the time the original loan was written. Some originators had as much as 80% of loans in the “liar loan” category.

So… if a borrower was barely making her (inflated) monthly payments, even a small payment “shock” could end up being rather shocking indeed.

[Where are the new words “alot” and “beleived” coming from?]

[Diego Mamani]

[quote=sdrealtor]It also mentions that once they do adjust the payment shock would be minimal so the only real danger is for those who suffer loss of employment. I am stunned if this is accurate as I beleived this was one of the real shoes that could drop. Government manipulation at its finest.[/quote]

I think the 2nd responder missed a crucial point here. The original article mentions one real danger other than loss of employment: overstated income at the time the original loan was written. Some originators had as much as 80% of loans in the “liar loan” category.

So… if a borrower was barely making her (inflated) monthly payments, even a small payment “shock” could end up being rather shocking indeed.

[Where are the new words “alot” and “beleived” coming from?]

[Author]

Posts