[(former)FormerSanDiegan]

[quote=JordanT]Your typical alt-A 5/1 ARM that originated in 2005 at 5.5- 5.75%, is tied to 12-month Libor with a margin of 2.25%.

Currently the 12-month LIBOR is under 2.5%.

5 years ago the 12-month LIBOR was at 1.4%. The loans resetting this month, reset to a higher interest rate until we get into loans that originated in June 2004 and later. For the next six months without the LIBOR going down, ARMS are going to reset higher. For 7/1 ARMS the 12-month LIBOR 7-years ago was 1.4% as well. The next two years of 7/1 ARMS saw the LIBOR at 1.4% meaning that there’s a very good chance they’ll reset higher as well, barring a drop in the LIBOR.[/quote]

You are incorrect. You seem to be confusing the start rate with the fully indexed rate. Loans originated in the Fall of 2003 when the 12-month LIBOR was in the 1.4% range had start rates of 5.5% with no points. I know this because I had such a loan.

Also, for the Jumbo loans in 2005 that I was looking into the start rate was 5.625% when the LIBOR was in the 4.25% range.

The start rate is often different than the fully indexed rate and tended to follow longer-term rates. The relationship between the start rate and fully indexed rates depends on the yield curve.

[(former)FormerSanDiegan]

[quote=JordanT]Your typical alt-A 5/1 ARM that originated in 2005 at 5.5- 5.75%, is tied to 12-month Libor with a margin of 2.25%.

Currently the 12-month LIBOR is under 2.5%.

5 years ago the 12-month LIBOR was at 1.4%. The loans resetting this month, reset to a higher interest rate until we get into loans that originated in June 2004 and later. For the next six months without the LIBOR going down, ARMS are going to reset higher. For 7/1 ARMS the 12-month LIBOR 7-years ago was 1.4% as well. The next two years of 7/1 ARMS saw the LIBOR at 1.4% meaning that there’s a very good chance they’ll reset higher as well, barring a drop in the LIBOR.[/quote]

You are incorrect. You seem to be confusing the start rate with the fully indexed rate. Loans originated in the Fall of 2003 when the 12-month LIBOR was in the 1.4% range had start rates of 5.5% with no points. I know this because I had such a loan.

Also, for the Jumbo loans in 2005 that I was looking into the start rate was 5.625% when the LIBOR was in the 4.25% range.

The start rate is often different than the fully indexed rate and tended to follow longer-term rates. The relationship between the start rate and fully indexed rates depends on the yield curve.

[(former)FormerSanDiegan]

[quote=stockstradr]Here’s your latest news from the war on deflation (we’re losing the war):

U.S. consumer prices fell in November at the fastest rate since 1932
http://www.marketwatch.com/news/story/drop-consumer-prices-most-since/story.aspx?guid=%7B45513693%2D102D%2D4A67%2D8859%2DC73778BF4777%7D&dist=TNMostRead

Here’s a tip: deflation is not good for TIPS

Here’s a riddle: if you hold a bond paying 3% in an economy experiencing 10% annual deflation, what rate are you “earning” on your bond?

[/quote]

It is interesting that the business press is now focused on total CPI (including food & energy), whereas when total CPI appeared to be out of control the business press focused on core CPI.

In the current report the core CPI hardly changed.
The changes in total CPI over the past 2 years have been exaggerated on the upside when energy costs inflated and exaggerated to the downside now that energy prices have deflated. This effect is why the core CPI was invented in the first place.

If energy deflation makes its way eventually into core prices, then deflation becomes a major issue. There is definitely potential for this to happen. But in my opinion we have yet to see it and I believe that even in the short run (1-2 years) term there is still a tight race between Government printing presses and the impact of recession/declining energy prices on overall inflation (or deflation). With the money supply up by an annualized 36% or so over the three months my bet is on inflation.

[(former)FormerSanDiegan]

[quote=stockstradr]Here’s your latest news from the war on deflation (we’re losing the war):

U.S. consumer prices fell in November at the fastest rate since 1932
http://www.marketwatch.com/news/story/drop-consumer-prices-most-since/story.aspx?guid=%7B45513693%2D102D%2D4A67%2D8859%2DC73778BF4777%7D&dist=TNMostRead

Here’s a tip: deflation is not good for TIPS

Here’s a riddle: if you hold a bond paying 3% in an economy experiencing 10% annual deflation, what rate are you “earning” on your bond?

[/quote]

It is interesting that the business press is now focused on total CPI (including food & energy), whereas when total CPI appeared to be out of control the business press focused on core CPI.

In the current report the core CPI hardly changed.
The changes in total CPI over the past 2 years have been exaggerated on the upside when energy costs inflated and exaggerated to the downside now that energy prices have deflated. This effect is why the core CPI was invented in the first place.

If energy deflation makes its way eventually into core prices, then deflation becomes a major issue. There is definitely potential for this to happen. But in my opinion we have yet to see it and I believe that even in the short run (1-2 years) term there is still a tight race between Government printing presses and the impact of recession/declining energy prices on overall inflation (or deflation). With the money supply up by an annualized 36% or so over the three months my bet is on inflation.

[(former)FormerSanDiegan]

[quote=stockstradr]Here’s your latest news from the war on deflation (we’re losing the war):

U.S. consumer prices fell in November at the fastest rate since 1932
http://www.marketwatch.com/news/story/drop-consumer-prices-most-since/story.aspx?guid=%7B45513693%2D102D%2D4A67%2D8859%2DC73778BF4777%7D&dist=TNMostRead

Here’s a tip: deflation is not good for TIPS

Here’s a riddle: if you hold a bond paying 3% in an economy experiencing 10% annual deflation, what rate are you “earning” on your bond?

[/quote]

It is interesting that the business press is now focused on total CPI (including food & energy), whereas when total CPI appeared to be out of control the business press focused on core CPI.

In the current report the core CPI hardly changed.
The changes in total CPI over the past 2 years have been exaggerated on the upside when energy costs inflated and exaggerated to the downside now that energy prices have deflated. This effect is why the core CPI was invented in the first place.

If energy deflation makes its way eventually into core prices, then deflation becomes a major issue. There is definitely potential for this to happen. But in my opinion we have yet to see it and I believe that even in the short run (1-2 years) term there is still a tight race between Government printing presses and the impact of recession/declining energy prices on overall inflation (or deflation). With the money supply up by an annualized 36% or so over the three months my bet is on inflation.

[(former)FormerSanDiegan]

[quote=stockstradr]Here’s your latest news from the war on deflation (we’re losing the war):

U.S. consumer prices fell in November at the fastest rate since 1932
http://www.marketwatch.com/news/story/drop-consumer-prices-most-since/story.aspx?guid=%7B45513693%2D102D%2D4A67%2D8859%2DC73778BF4777%7D&dist=TNMostRead

Here’s a tip: deflation is not good for TIPS

Here’s a riddle: if you hold a bond paying 3% in an economy experiencing 10% annual deflation, what rate are you “earning” on your bond?

[/quote]

It is interesting that the business press is now focused on total CPI (including food & energy), whereas when total CPI appeared to be out of control the business press focused on core CPI.

In the current report the core CPI hardly changed.
The changes in total CPI over the past 2 years have been exaggerated on the upside when energy costs inflated and exaggerated to the downside now that energy prices have deflated. This effect is why the core CPI was invented in the first place.

If energy deflation makes its way eventually into core prices, then deflation becomes a major issue. There is definitely potential for this to happen. But in my opinion we have yet to see it and I believe that even in the short run (1-2 years) term there is still a tight race between Government printing presses and the impact of recession/declining energy prices on overall inflation (or deflation). With the money supply up by an annualized 36% or so over the three months my bet is on inflation.

[(former)FormerSanDiegan]

[quote=stockstradr]Here’s your latest news from the war on deflation (we’re losing the war):

U.S. consumer prices fell in November at the fastest rate since 1932
http://www.marketwatch.com/news/story/drop-consumer-prices-most-since/story.aspx?guid=%7B45513693%2D102D%2D4A67%2D8859%2DC73778BF4777%7D&dist=TNMostRead

Here’s a tip: deflation is not good for TIPS

Here’s a riddle: if you hold a bond paying 3% in an economy experiencing 10% annual deflation, what rate are you “earning” on your bond?

[/quote]

It is interesting that the business press is now focused on total CPI (including food & energy), whereas when total CPI appeared to be out of control the business press focused on core CPI.

In the current report the core CPI hardly changed.
The changes in total CPI over the past 2 years have been exaggerated on the upside when energy costs inflated and exaggerated to the downside now that energy prices have deflated. This effect is why the core CPI was invented in the first place.

If energy deflation makes its way eventually into core prices, then deflation becomes a major issue. There is definitely potential for this to happen. But in my opinion we have yet to see it and I believe that even in the short run (1-2 years) term there is still a tight race between Government printing presses and the impact of recession/declining energy prices on overall inflation (or deflation). With the money supply up by an annualized 36% or so over the three months my bet is on inflation.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=Fearful][quote=FormerSanDiegan]The option ARMs are toast already because of negative amortizaiton. The Alt-A interest only or “traditional” ARMs are not nearly as deadly.
[/quote]
There are two separate factors. One is that these are ARMs and can reset to prohibitive interest rates. The other is that these are Alt-A, meaning that their overall affordability, even at the initial interest rate, is in doubt. From Wikipedia:

Characteristics of Alt-A

Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of “conforming” or “agency” mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

There are numerous factors that might cause a mortgage not to qualify under the GSEs’ lending guidelines even though the borrower’s creditworthiness is generally strong. A few of the more important factors are:

* Reduced borrower income and asset documentation (for example, “stated income”, “stated assets”, “no income verification”)
* Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
* Credit history with too many problems to qualify for an “agency” loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
* Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved

[end]

Simply put, these are mortgages that, even initially, were not affordable enough for the GSEs to buy.

Lower reset interest rates help the Alt-A problem, but they absolutely do not make it go away. It might not be a tsunami, but not a ripple either. Unfortunately, the underlying data on the mortgages is poor, so no one knows for sure how unaffordable the mortgages are, and one is forced to go back to more broad metrics such as house price to income ratios.
[/quote]

I had a stated income loan, hence it was alt-A.
I did not overstate our income. It was simply too easy to do stated with virtually no penalty at the time in terms of higher rates. It is definitely a different world today.

But I am willing to bet that there are a significant number of alt-A loans where the borrower is ready and able to pay. They just may not be willing depending on the value of the property with respect to the loan amount.

[(former)FormerSanDiegan]

[quote=patb]

All the non conventional mortgages are dead meat.

it’s just a matter of time[/quote]

Define non-conventional.

If you mean anything that is an ARM (as opposed to fixed rate) you are wrong.

Until last year I had an adjustable rate loan that was interest only for 5 years on a rental property in San Diego (oooh, SCARY !).

Unfortunately, since I am conservative (from an investment point-of-view) I made the mistake of refinancing into a fixed rate loan last year at 6.25%. If I had kept my “dead meat” loan my reset would have been below 5.25%. I’m pretty sure I would have been OK paying a couple hundred per month less on my loan. In the long run I guess that’s the insurance I am paying to keep my fixed rate.

[(former)FormerSanDiegan]

[quote=patb]

All the non conventional mortgages are dead meat.

it’s just a matter of time[/quote]

Define non-conventional.

If you mean anything that is an ARM (as opposed to fixed rate) you are wrong.

Until last year I had an adjustable rate loan that was interest only for 5 years on a rental property in San Diego (oooh, SCARY !).

Unfortunately, since I am conservative (from an investment point-of-view) I made the mistake of refinancing into a fixed rate loan last year at 6.25%. If I had kept my “dead meat” loan my reset would have been below 5.25%. I’m pretty sure I would have been OK paying a couple hundred per month less on my loan. In the long run I guess that’s the insurance I am paying to keep my fixed rate.

[(former)FormerSanDiegan]

[quote=patb]

All the non conventional mortgages are dead meat.

it’s just a matter of time[/quote]

Define non-conventional.

If you mean anything that is an ARM (as opposed to fixed rate) you are wrong.

Until last year I had an adjustable rate loan that was interest only for 5 years on a rental property in San Diego (oooh, SCARY !).

Unfortunately, since I am conservative (from an investment point-of-view) I made the mistake of refinancing into a fixed rate loan last year at 6.25%. If I had kept my “dead meat” loan my reset would have been below 5.25%. I’m pretty sure I would have been OK paying a couple hundred per month less on my loan. In the long run I guess that’s the insurance I am paying to keep my fixed rate.

[Author]

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