questioning the option arm timebomb thesis

[Arraya]

[quote=Rt.66]What the OP’s article is missing is that its neg-am “recasts” not interest rate “resets” that is the big problem. California is ground zero for this painfest.

The Truth about Option ARMs, Pick-a-Pay Mortgages, and Alt-A Loans: Looking at Wells Fargo, Bank of America, and JP Morgan. We are in the Eye of the $469 Billion Toxic Mortgage Hurricane and Silence is not Golden.

But if you are trying to sell houses then you need to at least try and make it look as though now is a good time to buy. To do that you need to convince people things won’t be getting worse in 2010 and beyond.[/quote]

It all depends on what payment they were paying. If they were paying the minimum, and we don’t have stats nor a way to get them so we can only speculate, then they will default or try to mod. No ifs ands or buts, people paying the minimum will re-cast, not reset, to a much much higher payment. Interest rates are irrelevant.

Still, looking for certain “time bombs” is futile, IMO

Defaults have been a record highs nationally for 3-4 months strait. Trying to figure out the option arm affect is interesting and worthy research but only a part of much bigger confluence of forces.

Lets not forget the unemployment time bomb. How many people lost their employment in 2009 and are still sitting in their house enjoying a free place to stay happy about the banks reluctance to take back there home because of balance sheet reasons or why ever they are stalling.

[sdrealtor]

I think he addressed the recasts in that the loans are not neg amortizing anymore to a large degree (or at all) even at minimum teaser rate based payments because the MTA is so low. First time I ever heard that and it surprised me. I find that hard to beleive also. I do beleive most of the OA’s that were going to go bad already have (i.e. 50% of the bad loans are gone already via sales, short sales and foreclosures) and that the OA time bomb is is overblown. The real issue is unemployment. The gov’t can kick the can with all sorts of assistance programs but none that I know of work unless you have an income.

[sdrealtor]

I think he addressed the recasts in that the loans are not neg amortizing anymore to a large degree (or at all) even at minimum teaser rate based payments because the MTA is so low. First time I ever heard that and it surprised me. I find that hard to beleive also. I do beleive most of the OA’s that were going to go bad already have (i.e. 50% of the bad loans are gone already via sales, short sales and foreclosures) and that the OA time bomb is is overblown. The real issue is unemployment. The gov’t can kick the can with all sorts of assistance programs but none that I know of work unless you have an income.

[sdrealtor]

I think he addressed the recasts in that the loans are not neg amortizing anymore to a large degree (or at all) even at minimum teaser rate based payments because the MTA is so low. First time I ever heard that and it surprised me. I find that hard to beleive also. I do beleive most of the OA’s that were going to go bad already have (i.e. 50% of the bad loans are gone already via sales, short sales and foreclosures) and that the OA time bomb is is overblown. The real issue is unemployment. The gov’t can kick the can with all sorts of assistance programs but none that I know of work unless you have an income.

[sdrealtor]

I think he addressed the recasts in that the loans are not neg amortizing anymore to a large degree (or at all) even at minimum teaser rate based payments because the MTA is so low. First time I ever heard that and it surprised me. I find that hard to beleive also. I do beleive most of the OA’s that were going to go bad already have (i.e. 50% of the bad loans are gone already via sales, short sales and foreclosures) and that the OA time bomb is is overblown. The real issue is unemployment. The gov’t can kick the can with all sorts of assistance programs but none that I know of work unless you have an income.

[sdrealtor]

I think he addressed the recasts in that the loans are not neg amortizing anymore to a large degree (or at all) even at minimum teaser rate based payments because the MTA is so low. First time I ever heard that and it surprised me. I find that hard to beleive also. I do beleive most of the OA’s that were going to go bad already have (i.e. 50% of the bad loans are gone already via sales, short sales and foreclosures) and that the OA time bomb is is overblown. The real issue is unemployment. The gov’t can kick the can with all sorts of assistance programs but none that I know of work unless you have an income.

[Rt.66]

This is a thread on “option ARMs” not simple ARMs. If you always make the minimum payment with your Option ARM (which is the option in option ARM) low interest rates will not stop a neg-am “recast”. Does not take much creative thought to imagine how many people may be paying more than minimum on drastically underwater homes.

From the link:

Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years.

Source:
http://www.doctorhousingbubble.com/the-truth-about-option-arms-pick-a-pay-mortgages-and-alt-a-loans-looking-at-wells-fargo-bank-of-america-and-jp-morgan-we-are-in-the-eye-of-the-469-billion-toxic-mortgage-hurricane-and-silence/

And if it still does not click then try this:

Now do some basic math here. If 58 percent of the face value of the active loans is here in California, we have at least $109 billion in option ARMs just in the state. Keep in mind this is the lower bound estimate since Fitch only looked at securitized option ARMs. If we look at the total universe of these loans, we will find nearly 900,000 loans – 92,000 currently in foreclosure and 139,000 that are seriously delinquent but that leaves the bulk out floating in mortgage purgatory:……………………………………………….

As of January of 2009, 73 percent of all active option ARMs are underwater. In other words, California has $109 billion in option ARMs that have no remedy in this current market aside from foreclosure which lenders are obviously balking at. I would argue that even more are underwater because many of these were made at the peak with low or no down payment. They started out with little to no equity and this was before the California housing market imploded.

So we have established that option ARMs are largely an isolated problem and the majority of these loans are here in California. Many of these loans are going to implode not because of rate resets which adjust to interest rates, but the actual recast volume. Many are entering this stage earlier because of negative amortization caps being hit. Over 90 percent elected to go with the negative amortization payment option and this has actually increased the balance of many of these loans. At least with many subprime loans the balance didn’t grow.
And most of these option ARMs will fail to even qualify for HAMP because they are severely underwater:

Source
http://www.bearmarketinvestments.com/option-arms-enter-the-eye-of-the-hurricane-the-189-billion-recast-problem-targeted-directly-at-the-california-housing-market-of-189-billion-in-securitized-option-arms-109-billion-in-california

[Rt.66]

This is a thread on “option ARMs” not simple ARMs. If you always make the minimum payment with your Option ARM (which is the option in option ARM) low interest rates will not stop a neg-am “recast”. Does not take much creative thought to imagine how many people may be paying more than minimum on drastically underwater homes.

From the link:

Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years.

Source:
http://www.doctorhousingbubble.com/the-truth-about-option-arms-pick-a-pay-mortgages-and-alt-a-loans-looking-at-wells-fargo-bank-of-america-and-jp-morgan-we-are-in-the-eye-of-the-469-billion-toxic-mortgage-hurricane-and-silence/

And if it still does not click then try this:

Now do some basic math here. If 58 percent of the face value of the active loans is here in California, we have at least $109 billion in option ARMs just in the state. Keep in mind this is the lower bound estimate since Fitch only looked at securitized option ARMs. If we look at the total universe of these loans, we will find nearly 900,000 loans – 92,000 currently in foreclosure and 139,000 that are seriously delinquent but that leaves the bulk out floating in mortgage purgatory:……………………………………………….

As of January of 2009, 73 percent of all active option ARMs are underwater. In other words, California has $109 billion in option ARMs that have no remedy in this current market aside from foreclosure which lenders are obviously balking at. I would argue that even more are underwater because many of these were made at the peak with low or no down payment. They started out with little to no equity and this was before the California housing market imploded.

So we have established that option ARMs are largely an isolated problem and the majority of these loans are here in California. Many of these loans are going to implode not because of rate resets which adjust to interest rates, but the actual recast volume. Many are entering this stage earlier because of negative amortization caps being hit. Over 90 percent elected to go with the negative amortization payment option and this has actually increased the balance of many of these loans. At least with many subprime loans the balance didn’t grow.
And most of these option ARMs will fail to even qualify for HAMP because they are severely underwater:

Source
http://www.bearmarketinvestments.com/option-arms-enter-the-eye-of-the-hurricane-the-189-billion-recast-problem-targeted-directly-at-the-california-housing-market-of-189-billion-in-securitized-option-arms-109-billion-in-california

[Rt.66]

This is a thread on “option ARMs” not simple ARMs. If you always make the minimum payment with your Option ARM (which is the option in option ARM) low interest rates will not stop a neg-am “recast”. Does not take much creative thought to imagine how many people may be paying more than minimum on drastically underwater homes.

From the link:

Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years.

Source:
http://www.doctorhousingbubble.com/the-truth-about-option-arms-pick-a-pay-mortgages-and-alt-a-loans-looking-at-wells-fargo-bank-of-america-and-jp-morgan-we-are-in-the-eye-of-the-469-billion-toxic-mortgage-hurricane-and-silence/

And if it still does not click then try this:

Now do some basic math here. If 58 percent of the face value of the active loans is here in California, we have at least $109 billion in option ARMs just in the state. Keep in mind this is the lower bound estimate since Fitch only looked at securitized option ARMs. If we look at the total universe of these loans, we will find nearly 900,000 loans – 92,000 currently in foreclosure and 139,000 that are seriously delinquent but that leaves the bulk out floating in mortgage purgatory:……………………………………………….

As of January of 2009, 73 percent of all active option ARMs are underwater. In other words, California has $109 billion in option ARMs that have no remedy in this current market aside from foreclosure which lenders are obviously balking at. I would argue that even more are underwater because many of these were made at the peak with low or no down payment. They started out with little to no equity and this was before the California housing market imploded.

So we have established that option ARMs are largely an isolated problem and the majority of these loans are here in California. Many of these loans are going to implode not because of rate resets which adjust to interest rates, but the actual recast volume. Many are entering this stage earlier because of negative amortization caps being hit. Over 90 percent elected to go with the negative amortization payment option and this has actually increased the balance of many of these loans. At least with many subprime loans the balance didn’t grow.
And most of these option ARMs will fail to even qualify for HAMP because they are severely underwater:

Source
http://www.bearmarketinvestments.com/option-arms-enter-the-eye-of-the-hurricane-the-189-billion-recast-problem-targeted-directly-at-the-california-housing-market-of-189-billion-in-securitized-option-arms-109-billion-in-california

[Rt.66]

This is a thread on “option ARMs” not simple ARMs. If you always make the minimum payment with your Option ARM (which is the option in option ARM) low interest rates will not stop a neg-am “recast”. Does not take much creative thought to imagine how many people may be paying more than minimum on drastically underwater homes.

From the link:

Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years.

Source:
http://www.doctorhousingbubble.com/the-truth-about-option-arms-pick-a-pay-mortgages-and-alt-a-loans-looking-at-wells-fargo-bank-of-america-and-jp-morgan-we-are-in-the-eye-of-the-469-billion-toxic-mortgage-hurricane-and-silence/

And if it still does not click then try this:

Now do some basic math here. If 58 percent of the face value of the active loans is here in California, we have at least $109 billion in option ARMs just in the state. Keep in mind this is the lower bound estimate since Fitch only looked at securitized option ARMs. If we look at the total universe of these loans, we will find nearly 900,000 loans – 92,000 currently in foreclosure and 139,000 that are seriously delinquent but that leaves the bulk out floating in mortgage purgatory:……………………………………………….

As of January of 2009, 73 percent of all active option ARMs are underwater. In other words, California has $109 billion in option ARMs that have no remedy in this current market aside from foreclosure which lenders are obviously balking at. I would argue that even more are underwater because many of these were made at the peak with low or no down payment. They started out with little to no equity and this was before the California housing market imploded.

So we have established that option ARMs are largely an isolated problem and the majority of these loans are here in California. Many of these loans are going to implode not because of rate resets which adjust to interest rates, but the actual recast volume. Many are entering this stage earlier because of negative amortization caps being hit. Over 90 percent elected to go with the negative amortization payment option and this has actually increased the balance of many of these loans. At least with many subprime loans the balance didn’t grow.
And most of these option ARMs will fail to even qualify for HAMP because they are severely underwater:

Source
http://www.bearmarketinvestments.com/option-arms-enter-the-eye-of-the-hurricane-the-189-billion-recast-problem-targeted-directly-at-the-california-housing-market-of-189-billion-in-securitized-option-arms-109-billion-in-california

[Rt.66]

This is a thread on “option ARMs” not simple ARMs. If you always make the minimum payment with your Option ARM (which is the option in option ARM) low interest rates will not stop a neg-am “recast”. Does not take much creative thought to imagine how many people may be paying more than minimum on drastically underwater homes.

From the link:

Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years.

Source:
http://www.doctorhousingbubble.com/the-truth-about-option-arms-pick-a-pay-mortgages-and-alt-a-loans-looking-at-wells-fargo-bank-of-america-and-jp-morgan-we-are-in-the-eye-of-the-469-billion-toxic-mortgage-hurricane-and-silence/

And if it still does not click then try this:

Now do some basic math here. If 58 percent of the face value of the active loans is here in California, we have at least $109 billion in option ARMs just in the state. Keep in mind this is the lower bound estimate since Fitch only looked at securitized option ARMs. If we look at the total universe of these loans, we will find nearly 900,000 loans – 92,000 currently in foreclosure and 139,000 that are seriously delinquent but that leaves the bulk out floating in mortgage purgatory:……………………………………………….

As of January of 2009, 73 percent of all active option ARMs are underwater. In other words, California has $109 billion in option ARMs that have no remedy in this current market aside from foreclosure which lenders are obviously balking at. I would argue that even more are underwater because many of these were made at the peak with low or no down payment. They started out with little to no equity and this was before the California housing market imploded.

So we have established that option ARMs are largely an isolated problem and the majority of these loans are here in California. Many of these loans are going to implode not because of rate resets which adjust to interest rates, but the actual recast volume. Many are entering this stage earlier because of negative amortization caps being hit. Over 90 percent elected to go with the negative amortization payment option and this has actually increased the balance of many of these loans. At least with many subprime loans the balance didn’t grow.
And most of these option ARMs will fail to even qualify for HAMP because they are severely underwater:

Source
http://www.bearmarketinvestments.com/option-arms-enter-the-eye-of-the-hurricane-the-189-billion-recast-problem-targeted-directly-at-the-california-housing-market-of-189-billion-in-securitized-option-arms-109-billion-in-california

[jpinpb]

Thanks for those links. Some interesting charts and graphs. It’s still taking quite some time to work through subprime. It’s unknown what will happen to those HAMP loans that are not made permanent. There are still many homes w/NODs and no foreclosure dates scheduled and even more people not paying their loans and not even receiving NODs.

In light of the kicking of the can w/the subprime loans, who knows how long before the Option ARMs will hit the market. Those may be even more costly loans and I’m sure the banks don’t want to contend w/those losses. This will be an even greater delay, imo.

[jpinpb]

Thanks for those links. Some interesting charts and graphs. It’s still taking quite some time to work through subprime. It’s unknown what will happen to those HAMP loans that are not made permanent. There are still many homes w/NODs and no foreclosure dates scheduled and even more people not paying their loans and not even receiving NODs.

In light of the kicking of the can w/the subprime loans, who knows how long before the Option ARMs will hit the market. Those may be even more costly loans and I’m sure the banks don’t want to contend w/those losses. This will be an even greater delay, imo.

[jpinpb]

Thanks for those links. Some interesting charts and graphs. It’s still taking quite some time to work through subprime. It’s unknown what will happen to those HAMP loans that are not made permanent. There are still many homes w/NODs and no foreclosure dates scheduled and even more people not paying their loans and not even receiving NODs.

In light of the kicking of the can w/the subprime loans, who knows how long before the Option ARMs will hit the market. Those may be even more costly loans and I’m sure the banks don’t want to contend w/those losses. This will be an even greater delay, imo.

[jpinpb]

Thanks for those links. Some interesting charts and graphs. It’s still taking quite some time to work through subprime. It’s unknown what will happen to those HAMP loans that are not made permanent. There are still many homes w/NODs and no foreclosure dates scheduled and even more people not paying their loans and not even receiving NODs.

In light of the kicking of the can w/the subprime loans, who knows how long before the Option ARMs will hit the market. Those may be even more costly loans and I’m sure the banks don’t want to contend w/those losses. This will be an even greater delay, imo.

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