[HLS]

RAYB, in financial terms, the neg am loan (IMO) is the worst loan ever invented for the average borrower, but the best ever for the lender and salesperson.

You are absolutely correct that it CAN serve a purpose for high net worth, savvy borrowers. As with many things, it’s been abused. Most people don’t know that neg am loans have been around about 25 years, started by World Savings as a portfolio product.

About 5 years ago, the mass rollout started, of offering the largest commission of ANY loan product to the salesperson.
A neg am loan consists of an index PLUS a margin.
The higher the margin you put the borrower into, the higher your commission was. Even a “good neg am” loan was bad.

You may heve qualified for a fixed 6% interest only loan.
The true rate on your “good neg am” was 8%, a 33% premium.
A “bad neg am” could have you at 9%, a 50% premium.
The tradeoff was the option of a low teaser rate.

When you made lowest payment #1, whatever you didn’t pay was added to your loan balance, so you were paying interest on top of deferred interest.

For those that don’t understand how they work, your lowest payment option might have been $1200, with a full interest only payment (at 8%) of $2300… When you only paid $1200, you would add $1100 to your loan balance.

Had you opted for the FULL interest only loan at 6%, your payment would have been $1725 (instead of $1200) and your loan balance wouldn’t grow.
So the cost of NOT paying the extra $525 a month, was $1100,(an extra $575)
Great financial decision?? Only for the lender..

Add insult to injury, they usually come with 3 year prepay penalty, a cash cost of 6 months FULL interest, IF you realize how bad the loan is.

Try and find ONE person of the thousands that have these loans that was given this explanation.

Yes, it “could” serve a purpose, but not to the masses.
My apologies if you already knew this, but at least one person reading will learn something.

The saddest thing is that many salespeople couldn’t explain the above because they truly didn’t understand what they were selling. They only understood the huge commissions, and the borrower didn’t know what to ask, they only saw the lowest payment option.

I once attended a World Savings Neg Am seminar just to watch the presentation. They wondered why I hadn’t ever originated one. The presentation was poor at best, and I didn’t want to embarrass the host. What I enjoyed the most was them saying that they do not like to use NEGATIVE AMORTIZATION, they prefer “Deferred Interest” (sounds better??) I saw glazed looks on faces all over the room, and there weren’t any intelligent questions asked.

The result is that most people have made the largest financial situation of their life guided by an uninformed knucklehead, with a crappy credit score, negative net worth, no mortgage, and very little financial background (if any)

There are still consumers that think they have a 2% loan.
There’s a sucker born every minute, and scammer will find them.

[HLS]

SUBPRIME lenders are willing to take a bit more risk, and GENERALLY (there are ALWAYS exceptions) prime lenders wanted a minimum mid-score of 620…
If you were 619 or below, you were usually subprime.
It all starts with your credit score…

For various reasons, even people with 700+ scores sometimes cannot get a prime lender loan.
Lending is based on rask & reward to the lender, based on their rules. You don’t explain away a 540 credit score.

The ignorance of the media and general comments made about subprime do nothing to explain the realities, and until the implosion, most people didn’t even know that subprime existed,and still don’t know what it really is.

The BIGGEST difference between Prime and Subprime is Prepayment Penalties. Subprime loans come with them, and will cost you to not have them.
Prime loans don’t come with them, but may save you money if you take one.

Once a loan is funded, the terms stay what they are, regardless of who buys it or does the servicing.
A loan is a loan.

You are correct, the borrower is considered subprime, and get loans from subprime lenders.

A subprime loan isn’t a “junk bond” to the borrower, but it could be viewed as one to the investor.

[HLS]

SUBPRIME lenders are willing to take a bit more risk, and GENERALLY (there are ALWAYS exceptions) prime lenders wanted a minimum mid-score of 620…
If you were 619 or below, you were usually subprime.
It all starts with your credit score…

For various reasons, even people with 700+ scores sometimes cannot get a prime lender loan.
Lending is based on rask & reward to the lender, based on their rules. You don’t explain away a 540 credit score.

The ignorance of the media and general comments made about subprime do nothing to explain the realities, and until the implosion, most people didn’t even know that subprime existed,and still don’t know what it really is.

The BIGGEST difference between Prime and Subprime is Prepayment Penalties. Subprime loans come with them, and will cost you to not have them.
Prime loans don’t come with them, but may save you money if you take one.

Once a loan is funded, the terms stay what they are, regardless of who buys it or does the servicing.
A loan is a loan.

You are correct, the borrower is considered subprime, and get loans from subprime lenders.

A subprime loan isn’t a “junk bond” to the borrower, but it could be viewed as one to the investor.

[HLS]

Hi COOP..

Let’s get those eys uncrossed, when I was a kid I was told that wasn’t safe!

BIG, HUGE, MONSTER difference between ARMS and interest only.
ARMS should NEVER be used if you intend to keep the loan long term. That’s just gambling on rates, which I DON’T recommend. ARMS are short term solutions OR band-aids if needed.

You CAN lock a fixed rate today for 30 years, and have an OPTION to pay interest only for the first 10 or 15 years.
For SOME people, depending on their overall financial situation, my statement is/was that it should be CONSIDERED.
I don’t say that it’s right for everybody.

I could easily spend 30 minutes discussing the potential benefits.

Most ARMS will continue to adjust every 6 or 12 months up to the maximum, which is always an index + a margin.
There are a few different indexes that could be used, and an unlimited number of margins.

I type too slow to give a lengthy explanation, and do actually have some loans to work on. Let me know if you’d like to be contacted privately.

[HLS]

Hi COOP..

Let’s get those eys uncrossed, when I was a kid I was told that wasn’t safe!

BIG, HUGE, MONSTER difference between ARMS and interest only.
ARMS should NEVER be used if you intend to keep the loan long term. That’s just gambling on rates, which I DON’T recommend. ARMS are short term solutions OR band-aids if needed.

You CAN lock a fixed rate today for 30 years, and have an OPTION to pay interest only for the first 10 or 15 years.
For SOME people, depending on their overall financial situation, my statement is/was that it should be CONSIDERED.
I don’t say that it’s right for everybody.

I could easily spend 30 minutes discussing the potential benefits.

Most ARMS will continue to adjust every 6 or 12 months up to the maximum, which is always an index + a margin.
There are a few different indexes that could be used, and an unlimited number of margins.

I type too slow to give a lengthy explanation, and do actually have some loans to work on. Let me know if you’d like to be contacted privately.

[HLS]

Alex,
You found yourself a real professional there. Pedigree and all. I bet their office and furniture was spectacular.

Stating that you aren’t subprime, do you actually know what subprime is ?

Do you know that sometimes subprime lenders have better rates than prime lenders ?

There are subprime loans that can work out better even for people with 800 scores.
I always check to find the best rates for my clients.

If you informed him that you wanted a 30 YR fixed rate, he should not have been pushing ARMS on you.

Shameless plug, are you still looking for a quote ?

[HLS]

Alex,
You found yourself a real professional there. Pedigree and all. I bet their office and furniture was spectacular.

Stating that you aren’t subprime, do you actually know what subprime is ?

Do you know that sometimes subprime lenders have better rates than prime lenders ?

There are subprime loans that can work out better even for people with 800 scores.
I always check to find the best rates for my clients.

If you informed him that you wanted a 30 YR fixed rate, he should not have been pushing ARMS on you.

Shameless plug, are you still looking for a quote ?

[HLS]

Double Dipping is NEVER OK in my opinion, but it is exactly what most do…

Actual example, It’s easiest to use interest only loans, but it applies to ALL loans.

$400K loan PAR 6.625% = Interest= $26,500
You are told 6.875% is the best rate,Interest=$27,500
(just a tiny quarter of a point)

You pay $1,000 more a year for life of the loan.
Lender paid $3000 commission in YSP.

You keep loan 10 years,
1) costs you $10K extra
2) LO got $3,000
You probably didn’t know about either 1 or 2.
Keeping loan longer costs you even more, up to 30 years.

IF given the choice, paying $3K more up front would save you $1,000 a year.
I would just tell you how much I needed to make on the loan and give borrower the choice of how to make that happen, but I don’t “double dip” (Makes me look bad, been told that I don’t charge enough)

If you only plan on keeping loan 2 or 3 years, a “no cost” loan could make total sense, but that ISN’T double dipping either.

In above example, 7.25% would yield a $6500 rebate, which would cover about all closing costs from a fair originator, but still leave you short with others. This “no cost” loan would cost you $2500 more per year in payments.

That’s how the NO COST loan works. People think it’s free.

[HLS]

Double Dipping is NEVER OK in my opinion, but it is exactly what most do…

Actual example, It’s easiest to use interest only loans, but it applies to ALL loans.

$400K loan PAR 6.625% = Interest= $26,500
You are told 6.875% is the best rate,Interest=$27,500
(just a tiny quarter of a point)

You pay $1,000 more a year for life of the loan.
Lender paid $3000 commission in YSP.

You keep loan 10 years,
1) costs you $10K extra
2) LO got $3,000
You probably didn’t know about either 1 or 2.
Keeping loan longer costs you even more, up to 30 years.

IF given the choice, paying $3K more up front would save you $1,000 a year.
I would just tell you how much I needed to make on the loan and give borrower the choice of how to make that happen, but I don’t “double dip” (Makes me look bad, been told that I don’t charge enough)

If you only plan on keeping loan 2 or 3 years, a “no cost” loan could make total sense, but that ISN’T double dipping either.

In above example, 7.25% would yield a $6500 rebate, which would cover about all closing costs from a fair originator, but still leave you short with others. This “no cost” loan would cost you $2500 more per year in payments.

That’s how the NO COST loan works. People think it’s free.

[HLS]

Congratulations. Is it SOLD like closed escrow and you have the money OR is it “sold” like you accepted an offer and the loan & escrow process is starting ??

[HLS]

Congratulations. Is it SOLD like closed escrow and you have the money OR is it “sold” like you accepted an offer and the loan & escrow process is starting ??

[HLS]

Arraya, I TOTALLY disagree with you. Your thinking is archaic to me.
I can assure you that I don’t need an explanation from anyone on the advantage of paying principal

So little principal is paid in the beginning, I advise taking the I/O loan and stashing the difference in the bank.
Don’t worry about a yield return that beats the mortgage rate OR justification.
Yes property does go down. You already bought it.
Owing a bit less doesn’t change that.

I’d rather have a client with $10,000-$20,000 CASH in the bank, safe and secure instead of lowering their loan balance by $20K.. There are other factors to consider, which I CLEARLY explain to my clients.

In a few years, they can always pay down the balance IF they choose. I also NEVER tell people that their house will be worth more someday.

I can guarantee you one thing, I never lost any sleep by having a liquid cushion of cash in the bank, regardless of my mortgage balances.

I have clients that did what you say to do, and they have some “equity” but they cannot get to it for various reasons, and they need it.

Up market/ Down market is doesn’t matter. I’ve studied this stuff 7 ways from Sunday. You owe what you owe and the house is worth what it’s worth. Too many people are going to owe a little bit less on their mortgage, but have no cash in the bank. It’s NOT a good thing.

Many people are also a slave to their mortgage and will die with a house that’s paid off. Yipee for them.

We can agree to disagree.

[HLS]

Arraya, I TOTALLY disagree with you. Your thinking is archaic to me.
I can assure you that I don’t need an explanation from anyone on the advantage of paying principal

So little principal is paid in the beginning, I advise taking the I/O loan and stashing the difference in the bank.
Don’t worry about a yield return that beats the mortgage rate OR justification.
Yes property does go down. You already bought it.
Owing a bit less doesn’t change that.

I’d rather have a client with $10,000-$20,000 CASH in the bank, safe and secure instead of lowering their loan balance by $20K.. There are other factors to consider, which I CLEARLY explain to my clients.

In a few years, they can always pay down the balance IF they choose. I also NEVER tell people that their house will be worth more someday.

I can guarantee you one thing, I never lost any sleep by having a liquid cushion of cash in the bank, regardless of my mortgage balances.

I have clients that did what you say to do, and they have some “equity” but they cannot get to it for various reasons, and they need it.

Up market/ Down market is doesn’t matter. I’ve studied this stuff 7 ways from Sunday. You owe what you owe and the house is worth what it’s worth. Too many people are going to owe a little bit less on their mortgage, but have no cash in the bank. It’s NOT a good thing.

Many people are also a slave to their mortgage and will die with a house that’s paid off. Yipee for them.

We can agree to disagree.

[HLS]

I am in the lending biz today, and just happen to know what ethics and integrity are AND I have them both.

Depending on you overall financial situation, I strongly suggest everybody CONSIDER an interest only loan. It’s a lifesaver for some, when understood.

Some people are just stubborn, and you can’t teach an old dog new tricks.

It makes no difference to me. I don’t make more on either.

Generalizations such as never and always that don’t address a borrwer’s overall specific situation are nothing short of irresponsible.

[HLS]

I am in the lending biz today, and just happen to know what ethics and integrity are AND I have them both.

Depending on you overall financial situation, I strongly suggest everybody CONSIDER an interest only loan. It’s a lifesaver for some, when understood.

Some people are just stubborn, and you can’t teach an old dog new tricks.

It makes no difference to me. I don’t make more on either.

Generalizations such as never and always that don’t address a borrwer’s overall specific situation are nothing short of irresponsible.

[Author]

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