questioning the option arm timebomb thesis

[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.

[DaCounselor]

It’s all about the index rate. If the indices had not been driven down toward historical lows, we would already be seeing a mass exodus of those in the 3/1 ARM products and we would be on the front edge of the second massive wave, those in the 5/1 products.

I don’t think the initial article misses the recast issue – I think he indicates that even at recast the payment spike will be not be devastating due to lower interest rates based on lower indices and a loan balance that has not grown massively.

As for what to expect with indices moving forward – my own yardstick is to look at the FFR as a benchmark as its easy to track and LIBOR typically follows fairly closely. My opinion is that 3% or lower is low. After the tech meltdown, the FFR was 3% or lower for 4 years. In this current debacle, the FFR has been 3% or lower for only 20 months. I think the table is set for low rates for longer than after the tech meltdown, so we have quite a bit of time to go in a low rate environment. FWIW.

[DaCounselor]

It’s all about the index rate. If the indices had not been driven down toward historical lows, we would already be seeing a mass exodus of those in the 3/1 ARM products and we would be on the front edge of the second massive wave, those in the 5/1 products.

I don’t think the initial article misses the recast issue – I think he indicates that even at recast the payment spike will be not be devastating due to lower interest rates based on lower indices and a loan balance that has not grown massively.

As for what to expect with indices moving forward – my own yardstick is to look at the FFR as a benchmark as its easy to track and LIBOR typically follows fairly closely. My opinion is that 3% or lower is low. After the tech meltdown, the FFR was 3% or lower for 4 years. In this current debacle, the FFR has been 3% or lower for only 20 months. I think the table is set for low rates for longer than after the tech meltdown, so we have quite a bit of time to go in a low rate environment. FWIW.

[DaCounselor]

It’s all about the index rate. If the indices had not been driven down toward historical lows, we would already be seeing a mass exodus of those in the 3/1 ARM products and we would be on the front edge of the second massive wave, those in the 5/1 products.

I don’t think the initial article misses the recast issue – I think he indicates that even at recast the payment spike will be not be devastating due to lower interest rates based on lower indices and a loan balance that has not grown massively.

As for what to expect with indices moving forward – my own yardstick is to look at the FFR as a benchmark as its easy to track and LIBOR typically follows fairly closely. My opinion is that 3% or lower is low. After the tech meltdown, the FFR was 3% or lower for 4 years. In this current debacle, the FFR has been 3% or lower for only 20 months. I think the table is set for low rates for longer than after the tech meltdown, so we have quite a bit of time to go in a low rate environment. FWIW.

[DaCounselor]

It’s all about the index rate. If the indices had not been driven down toward historical lows, we would already be seeing a mass exodus of those in the 3/1 ARM products and we would be on the front edge of the second massive wave, those in the 5/1 products.

I don’t think the initial article misses the recast issue – I think he indicates that even at recast the payment spike will be not be devastating due to lower interest rates based on lower indices and a loan balance that has not grown massively.

As for what to expect with indices moving forward – my own yardstick is to look at the FFR as a benchmark as its easy to track and LIBOR typically follows fairly closely. My opinion is that 3% or lower is low. After the tech meltdown, the FFR was 3% or lower for 4 years. In this current debacle, the FFR has been 3% or lower for only 20 months. I think the table is set for low rates for longer than after the tech meltdown, so we have quite a bit of time to go in a low rate environment. FWIW.

[DaCounselor]

It’s all about the index rate. If the indices had not been driven down toward historical lows, we would already be seeing a mass exodus of those in the 3/1 ARM products and we would be on the front edge of the second massive wave, those in the 5/1 products.

I don’t think the initial article misses the recast issue – I think he indicates that even at recast the payment spike will be not be devastating due to lower interest rates based on lower indices and a loan balance that has not grown massively.

As for what to expect with indices moving forward – my own yardstick is to look at the FFR as a benchmark as its easy to track and LIBOR typically follows fairly closely. My opinion is that 3% or lower is low. After the tech meltdown, the FFR was 3% or lower for 4 years. In this current debacle, the FFR has been 3% or lower for only 20 months. I think the table is set for low rates for longer than after the tech meltdown, so we have quite a bit of time to go in a low rate environment. FWIW.

[Anonymous]

I’m surprised by all the doom and gloom talk as well regarding the Option ARM. Isn’t the IO payment dropping below the Min payment at this point anyways? The MTA is at .49 for christ sakes. The media just needs to continue to beat this thing to death. I have a tendency to agree with linked bloggers article. The people that were going to foreclose, already have. With interest rates continuing to dip, and the neg am gone on their loans, why leave.

Too bad these loans were so abused- they had their merits. Case and Point: http://www.bankapedia.com/mortgage-encyclopedia/faqs/674-advantages-to-the-option-arm

Just a matter of time before they become illegal

[Anonymous]

I’m surprised by all the doom and gloom talk as well regarding the Option ARM. Isn’t the IO payment dropping below the Min payment at this point anyways? The MTA is at .49 for christ sakes. The media just needs to continue to beat this thing to death. I have a tendency to agree with linked bloggers article. The people that were going to foreclose, already have. With interest rates continuing to dip, and the neg am gone on their loans, why leave.

Too bad these loans were so abused- they had their merits. Case and Point: http://www.bankapedia.com/mortgage-encyclopedia/faqs/674-advantages-to-the-option-arm

Just a matter of time before they become illegal

[Anonymous]

I’m surprised by all the doom and gloom talk as well regarding the Option ARM. Isn’t the IO payment dropping below the Min payment at this point anyways? The MTA is at .49 for christ sakes. The media just needs to continue to beat this thing to death. I have a tendency to agree with linked bloggers article. The people that were going to foreclose, already have. With interest rates continuing to dip, and the neg am gone on their loans, why leave.

Too bad these loans were so abused- they had their merits. Case and Point: http://www.bankapedia.com/mortgage-encyclopedia/faqs/674-advantages-to-the-option-arm

Just a matter of time before they become illegal

[Anonymous]

I’m surprised by all the doom and gloom talk as well regarding the Option ARM. Isn’t the IO payment dropping below the Min payment at this point anyways? The MTA is at .49 for christ sakes. The media just needs to continue to beat this thing to death. I have a tendency to agree with linked bloggers article. The people that were going to foreclose, already have. With interest rates continuing to dip, and the neg am gone on their loans, why leave.

Too bad these loans were so abused- they had their merits. Case and Point: http://www.bankapedia.com/mortgage-encyclopedia/faqs/674-advantages-to-the-option-arm

Just a matter of time before they become illegal

[Anonymous]

I’m surprised by all the doom and gloom talk as well regarding the Option ARM. Isn’t the IO payment dropping below the Min payment at this point anyways? The MTA is at .49 for christ sakes. The media just needs to continue to beat this thing to death. I have a tendency to agree with linked bloggers article. The people that were going to foreclose, already have. With interest rates continuing to dip, and the neg am gone on their loans, why leave.

Too bad these loans were so abused- they had their merits. Case and Point: http://www.bankapedia.com/mortgage-encyclopedia/faqs/674-advantages-to-the-option-arm

Just a matter of time before they become illegal

[Anonymous]

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.

Why is this hard to believe given that the MTA is under 0.5%?

Btw, Wells Fargo reports quarterly the total amount of deferred interest on the Golden West Option ARMs they inherited. Here are the numbers by quarter (cumulative, not the amount of neg am that got added that quarter):

Q1 09: 4.4 billion
Q2 09: 4.2 billion
Q3 09: 3.9 billion

The amount of deferred interest has been going down steadily. Wells mentions in the latest 10-Q that most Option ARM loans are positively amortizing at this point.

Option ARM loans will probably lead to high loan losses at banks, but I don’t think there will be any recast catastrophe unless the MTA zooms up.

[Anonymous]

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.

Why is this hard to believe given that the MTA is under 0.5%?

Btw, Wells Fargo reports quarterly the total amount of deferred interest on the Golden West Option ARMs they inherited. Here are the numbers by quarter (cumulative, not the amount of neg am that got added that quarter):

Q1 09: 4.4 billion
Q2 09: 4.2 billion
Q3 09: 3.9 billion

The amount of deferred interest has been going down steadily. Wells mentions in the latest 10-Q that most Option ARM loans are positively amortizing at this point.

Option ARM loans will probably lead to high loan losses at banks, but I don’t think there will be any recast catastrophe unless the MTA zooms up.

[Anonymous]

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.

Why is this hard to believe given that the MTA is under 0.5%?

Btw, Wells Fargo reports quarterly the total amount of deferred interest on the Golden West Option ARMs they inherited. Here are the numbers by quarter (cumulative, not the amount of neg am that got added that quarter):

Q1 09: 4.4 billion
Q2 09: 4.2 billion
Q3 09: 3.9 billion

The amount of deferred interest has been going down steadily. Wells mentions in the latest 10-Q that most Option ARM loans are positively amortizing at this point.

Option ARM loans will probably lead to high loan losses at banks, but I don’t think there will be any recast catastrophe unless the MTA zooms up.

[Anonymous]

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.

Why is this hard to believe given that the MTA is under 0.5%?

Btw, Wells Fargo reports quarterly the total amount of deferred interest on the Golden West Option ARMs they inherited. Here are the numbers by quarter (cumulative, not the amount of neg am that got added that quarter):

Q1 09: 4.4 billion
Q2 09: 4.2 billion
Q3 09: 3.9 billion

The amount of deferred interest has been going down steadily. Wells mentions in the latest 10-Q that most Option ARM loans are positively amortizing at this point.

Option ARM loans will probably lead to high loan losses at banks, but I don’t think there will be any recast catastrophe unless the MTA zooms up.

[Author]

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