When an ARM adjusts…

[HLS]

There are really only 4 options when an ARM loan adjusts…

Option 1)
Pay the higher payment, until your next payment increase which is usually only 6 months OR 12 months away. Most ARMS have a 2 interest point move up on the first change, but a move from 5% to 7% is a 40% increase, or $1000 monthly on a $2,500 I/O payment. New I/O payment $3500. Don’t forget to add taxes & insurance.
Lender won’t check your credit score, re-appraise property or ask you to qualify for this loan.
(One problem is, most people wouldn’t qualify for their new payment, and it’s going to go up AGAIN in 6-12 months)

Option 2)
Refinance. If you can. Problem is that many have zero equity or are upside down (owe more than home is worth today) or may have a crappy credit score, or no reserves or a new job or a number of other situations that will preclude you from getting approved. Even if you do get approved, your new payment could be higher than your new adjustable payment.

Option 3)
Sell, IF you can, and hope that your net proceeds cover what you owe. This just isn’t a possibility for many. A short sale could get you a 1099 and you will owe income tax on the debt relief.

Option 4) Foreclosure.

[HereWeGo]

The refinance may come at some pain to the lender, but that’s almost certainly the solution that will eventually be required. If the borrowers stop servicing their debt en masse, that will soon be seen as the worst case scenario for the lenders.

[HereWeGo]

The refinance may come at some pain to the lender, but that’s almost certainly the solution that will eventually be required. If the borrowers stop servicing their debt en masse, that will soon be seen as the worst case scenario for the lenders.

[patientrenter]

Where are loan mods?

HLS, where does a loan modification fit in your classification scheme? Is that included under Option 2? If it is, then why would the lender apply the same standards they’d use for a new loan? Lenders as a group may make a macro bet that loan mods are cheaper than selling everything into a slump.

Patient renter in OC

[patientrenter]

Where are loan mods?

HLS, where does a loan modification fit in your classification scheme? Is that included under Option 2? If it is, then why would the lender apply the same standards they’d use for a new loan? Lenders as a group may make a macro bet that loan mods are cheaper than selling everything into a slump.

Patient renter in OC

[HereWeGo]

That’s what I intended to imply, pr. I just don’t see how the banks ultimately have any choice in the matter.

It’s a twist on an old saying: if you owe the bank 400K, and you default, then you have a problem. But if one million “yous” owe the bank 400K a piece, and they default, the banks have a very big problem.

[HereWeGo]

That’s what I intended to imply, pr. I just don’t see how the banks ultimately have any choice in the matter.

It’s a twist on an old saying: if you owe the bank 400K, and you default, then you have a problem. But if one million “yous” owe the bank 400K a piece, and they default, the banks have a very big problem.

[kaycee]

Perhaps my situation is different. My ARM is set to reset in May/June of next year. But buy my calculations, that is only a $300 increase on my $300,000 loan. Granted that is almost a 20% increase, but it is still not 1K a month. Wouldn’t there be an awful lot of people out there like me for whom this will not be a cataclysmic event?

[kaycee]

Perhaps my situation is different. My ARM is set to reset in May/June of next year. But buy my calculations, that is only a $300 increase on my $300,000 loan. Granted that is almost a 20% increase, but it is still not 1K a month. Wouldn’t there be an awful lot of people out there like me for whom this will not be a cataclysmic event?

[HLS]

This is what’s on the table today. Who knows what tomorrow will bring. Loan mods at the moment are thus:

“You cannot pay $2,000 a month and are $4,000 behind, why don’t you pay us $3,000 a month for the next 4 months and get caught up”

That’s loan mod today. Can’t afford to pay $2K, so the answer is $3K,, makes sense right ??

In addition, they whack your credit score and you are pretty much screwed no matter what, and still owe late charges.

Modifications are not reducing what is owed. You think that they are reducing principal on mods ?? Not that I know of….

I’m sure that you know, the worst loans were sold off on Wall Street, who knows where the paper actually is.
The servicing companies just do their jobs.

There will be major defualts but It may not be players that are well known. This is years away from being over.

[HLS]

This is what’s on the table today. Who knows what tomorrow will bring. Loan mods at the moment are thus:

“You cannot pay $2,000 a month and are $4,000 behind, why don’t you pay us $3,000 a month for the next 4 months and get caught up”

That’s loan mod today. Can’t afford to pay $2K, so the answer is $3K,, makes sense right ??

In addition, they whack your credit score and you are pretty much screwed no matter what, and still owe late charges.

Modifications are not reducing what is owed. You think that they are reducing principal on mods ?? Not that I know of….

I’m sure that you know, the worst loans were sold off on Wall Street, who knows where the paper actually is.
The servicing companies just do their jobs.

There will be major defualts but It may not be players that are well known. This is years away from being over.

[HLS]

Kaycee,,,
Not sure exactly what loan you have, but I would guess that your payment is going up more like $500 a month, if your loan is $300k and your margin is rising 2 pts.
If $300 is a 20% increase, $500 is over 30%.

The tradeoff is that you have saved $$ since inception.

If you plan on staying in the property after next May, you are gambling on the future. As long as you understand that, it’s OK.

Depending on a number of factors, If you plan on a refi,what is available to you today may not be available to you next year.

[HLS]

Kaycee,,,
Not sure exactly what loan you have, but I would guess that your payment is going up more like $500 a month, if your loan is $300k and your margin is rising 2 pts.
If $300 is a 20% increase, $500 is over 30%.

The tradeoff is that you have saved $$ since inception.

If you plan on staying in the property after next May, you are gambling on the future. As long as you understand that, it’s OK.

Depending on a number of factors, If you plan on a refi,what is available to you today may not be available to you next year.

[kaycee]

Sorry HLS I guess I should have been more specific. My mortgage (originally about $322K now down to about $300K) is at 4.125% My P& I is about $1,650. My ARM should reset to just over 6%. I figured that to be about $300 more a month.

The “PLAN” was to sell after 4 years (we’re military and figured we’d get orders in 3 ended up being 4) House has been on the market over a year now. Highly annoying but another story.

Anyway, I am perfectly capable of paying an additional $300 a month on the house. If I was actually living in it I wouldn’t even blink. Obviously, I can’t refi now since it isn’t my primary anymore. But still 6% isn’t a bad rate either. I don’t see it as a crisis. But then, I didn’t use the ARM to qualify into a house I couldn’t afford. But I’m sure that I’m the majority, who simply saw the teaser rate as a way to save some money on the front end.

[kaycee]

Sorry HLS I guess I should have been more specific. My mortgage (originally about $322K now down to about $300K) is at 4.125% My P& I is about $1,650. My ARM should reset to just over 6%. I figured that to be about $300 more a month.

The “PLAN” was to sell after 4 years (we’re military and figured we’d get orders in 3 ended up being 4) House has been on the market over a year now. Highly annoying but another story.

Anyway, I am perfectly capable of paying an additional $300 a month on the house. If I was actually living in it I wouldn’t even blink. Obviously, I can’t refi now since it isn’t my primary anymore. But still 6% isn’t a bad rate either. I don’t see it as a crisis. But then, I didn’t use the ARM to qualify into a house I couldn’t afford. But I’m sure that I’m the majority, who simply saw the teaser rate as a way to save some money on the front end.

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