[(former)FormerSanDiegan]

[quote=deadzone]FSD, in your case things might have worked out okay (up to now) but that is only because LIBOR is at a historic low. This just demonstrates how fragile the housing market is.

It also proves that the real reason behind the FED QE has been to minimize the foreclosure crisis due to the ARM loans resetting in 2010-2012 (as identified in the reset chart).

But we can debate all day long about the severity of the reset chart but one thing is certain, these resets are not going to help the housing recovery. Furthermore, if interest rates creep up in the next two years (at this point they are so low the only way they could move is up)it is going to exacerbate the problems and induce more foreclosures out of those resets.

So again, best case scenario (fed is successful in keeping rates at historic lows for the next two years, economy recovers, jobs recover, etc) RE prices will remain flat to slightly up. But worst case scenario things could get very, very ugly. Again, the prudent thing to do is wait until all of the ARMs resets are flushed out of the system because the potential down side is much greater than the upside.[/quote]

If interest rates rise conmsiderably, it likely means that there is some sort of recovery. The important factors on these resets will be 1) how long do rates stay this low; and 2) when rates do go back up will they be doing so in a growth environment; 3) how underwater are the loans when the rates go up.

It’s amazing what a few years of low interest rates will do to knock down the principal in a loan.

The net effect of the “second wave” of resets is that the impact will be spread over a number of years (e.g. half a decade or more), as opposed to the intial wave, in which resets at 7-8% triggered defaults and most went bad over about a 12-month period.

[(former)FormerSanDiegan]

[quote=deadzone]FSD, in your case things might have worked out okay (up to now) but that is only because LIBOR is at a historic low. This just demonstrates how fragile the housing market is.

It also proves that the real reason behind the FED QE has been to minimize the foreclosure crisis due to the ARM loans resetting in 2010-2012 (as identified in the reset chart).

But we can debate all day long about the severity of the reset chart but one thing is certain, these resets are not going to help the housing recovery. Furthermore, if interest rates creep up in the next two years (at this point they are so low the only way they could move is up)it is going to exacerbate the problems and induce more foreclosures out of those resets.

So again, best case scenario (fed is successful in keeping rates at historic lows for the next two years, economy recovers, jobs recover, etc) RE prices will remain flat to slightly up. But worst case scenario things could get very, very ugly. Again, the prudent thing to do is wait until all of the ARMs resets are flushed out of the system because the potential down side is much greater than the upside.[/quote]

If interest rates rise conmsiderably, it likely means that there is some sort of recovery. The important factors on these resets will be 1) how long do rates stay this low; and 2) when rates do go back up will they be doing so in a growth environment; 3) how underwater are the loans when the rates go up.

It’s amazing what a few years of low interest rates will do to knock down the principal in a loan.

The net effect of the “second wave” of resets is that the impact will be spread over a number of years (e.g. half a decade or more), as opposed to the intial wave, in which resets at 7-8% triggered defaults and most went bad over about a 12-month period.

[(former)FormerSanDiegan]

[quote=sdrealtor]FSD
I’ll add to your example that you are now making prinicipal payments that are more than $75/month.[/quote]

Good point. In my example, the payment would include almost $900 principal each month.

[(former)FormerSanDiegan]

[quote=sdrealtor]FSD
I’ll add to your example that you are now making prinicipal payments that are more than $75/month.[/quote]

Good point. In my example, the payment would include almost $900 principal each month.

[(former)FormerSanDiegan]

[quote=sdrealtor]FSD
I’ll add to your example that you are now making prinicipal payments that are more than $75/month.[/quote]

Good point. In my example, the payment would include almost $900 principal each month.

[(former)FormerSanDiegan]

[quote=sdrealtor]FSD
I’ll add to your example that you are now making prinicipal payments that are more than $75/month.[/quote]

Good point. In my example, the payment would include almost $900 principal each month.

[(former)FormerSanDiegan]

[quote=sdrealtor]FSD
I’ll add to your example that you are now making prinicipal payments that are more than $75/month.[/quote]

Good point. In my example, the payment would include almost $900 principal each month.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

deadzone –

There are plenty of reasons for loans to go bad, but the ARM reset/recast is not really as big a factor on the second wave as originally thought.

Resets (at least right now) are not really a major driver. Negative equity and job/income are the real drivers.

There are some loan categories in that chart that are/were disasatrous. Option ARM loans (those that allow negative amortization) are the worst and are toast. Most of these have recast and many are likely to burn up.

The rest of the loans, many of which were 5/1 I/O ARMS and similar are not nearly as bad.
I know this because I had one on my rental property. I refinanced into a 30-year fixed under 5%, but if I still had that loan today, the rate would be 3.25%.

Here are the numbers for a 5/1 I/O loan, originating in 2005 and recasting in 2010.

I am using actual rates that my loan would have had, but using round numbers for loan amounts:

Original loan: 5/1 I/O ARM
Balance: 400K
5.625% interest only fixed for 5 years
Index : 12-month LIBOR
Margin: 2.25%

interest-only payment : $1875 per month
monthly payment (inlcuding taxes and insurance) ~ 2375

2010 reset/recast
(assuming no optional principal payments made)

Balance: 400K
ARM rate resets to LIBOR (less than 1%) + 2.25%
Rate: 3.25%
Remaining Term: 25 years

Current payment (principal plus interest) :
1949 per month.

total monthly nut (including taxes and insurance) ~ 2450

A whopping $75 increase in payment 5 years later. This amounts to about a 3% increase in payment

If the property tax value dropped by at least 15% on appeal or reassessment, their total monthly outlay would be less than their original payment.

[(former)FormerSanDiegan]

[quote=socrattt]Article 7.1.9 of the Piggy Almanac states:

A poster may not revive his/her own post without a group vote. This is in strict violation of Pigg rules.

On a serious note, we’re screwed :).[/quote]

If your record is as good as Bubblesitter’s I think you can resurrect all the posts you want.

[(former)FormerSanDiegan]

[quote=socrattt]Article 7.1.9 of the Piggy Almanac states:

A poster may not revive his/her own post without a group vote. This is in strict violation of Pigg rules.

On a serious note, we’re screwed :).[/quote]

If your record is as good as Bubblesitter’s I think you can resurrect all the posts you want.

[(former)FormerSanDiegan]

[quote=socrattt]Article 7.1.9 of the Piggy Almanac states:

A poster may not revive his/her own post without a group vote. This is in strict violation of Pigg rules.

On a serious note, we’re screwed :).[/quote]

If your record is as good as Bubblesitter’s I think you can resurrect all the posts you want.

[Author]

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