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View Full Version : Can't keep a good Mortgage Bankster down: ARMs being pushed again!



c1ue
10-19-08, 09:34 PM
We're not even halfway through the LAST ARM debacle, and already attempts to push new ARMs!

Such a fine idea when the likelihood of an interest rate spike due to inflation is pretty much near 100%...

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/10/19/REU213FLG2.DTL



Now, rates on bigger mortgages are giving borrowers cause to carefully consider ARMs, and mortgage specialists say they are worth a look.
"Some borrowers right now must consider an ARM," said Keith Gumbinger, a vice president at HSH Associates, a financial industry publisher. He said that is especially true of those who need jumbo loans - mortgages so big that lenders cannot sell the loan to Fannie Mae or Freddie Mac, the government-sponsored companies that resell mortgages to investors\



Lately, Gumbinger said, interest rates on 30-year fixed jumbo loans have hovered around 7.5 percent. At that level, a borrower with a $750,000 loan would pay $5,249 monthly. By comparison, a buyer who opts for a 5/1 ARM - in which the rate remains fixed for five years but then varies every 12 months according to a particular market index - could get an initial interest rate of 6.56 percent. On a monthly basis for the first five years, the ARM costs $4,770, or $479 less.


At least a little disclosure...


If, however, the borrower keeps the home for many years and rates steadily rise, he could end up paying the maximum rate, which is typically capped at six percentage points above the starting rate. A rate of 12.5 percent would certainly sting.

Followed by...



Of course, ARM rates can also drop, and borrowers can save if rates go down.


More CYA



Interest rates on ARMs are commonly tied to one of three market indexes: the Federal Home Loan Bank's 11th District cost of funds index (COFI), the London interbank offered rate (Libor), or the one-year United States Treasury index (Treasurys for short).
The COFI is typically less volatile than the other indexes, Gumbinger said.
ARMs tied to the Libor have been hammered recently. Since Sept. 1, rates after the initial fixed period on these loans have jumped by more than 1.5 percentage points, to about 6.25 percent.


But of course, must have the sales pitch



By contrast, those with ARMs tied to the COFI index saw their rates remain steady in that time. Those with ARMs tied to the weekly Treasury indexes had their rates drop by half of a percentage point, to 4.34 percent.


So, pushing ARMs for those unable to get jumbo loans, and with 'follow the low rate' by using Treasury indexes.

Ugh!

Verrocchio
10-19-08, 09:59 PM
We're not even halfway through the LAST ARM debacle, and already attempts to push new ARMs!

The banksters who made good with ARMS would find it hard to stop now. Why would they? ARMS have been good to them. The entire machinery for creating, processing, packaging, and selling these loans is sitting there intact, with its motor idling, purring, just begging to be exercised...

leonel80
10-26-08, 11:25 AM
ARMS should be banned. We have to work with fixed interest rate only. Who knows what is going to happen into the future. We have to learn from our past errors and move on. I say no more ARMs loans.

Chomsky
11-03-08, 09:14 PM
ARMS should be banned. We have to work with fixed interest rate only. Who knows what is going to happen into the future. We have to learn from our past errors and move on. I say no more ARMs loans.


I think it's going to be the other way around. Unless all mortgages become full recourse loans, lenders broach a lot of risk with fixed-rate mortgages, even more so in what is likely to be a highly inflationary environment going forward. The days of the 30-year fixed are numbered. (That's not to say that 100% LTV or neg-am mortgages are going to be around much longer.)

Sidewinder
11-03-08, 10:03 PM
I think it's going to be the other way around. Unless all mortgages become full recourse loans, lenders broach a lot of risk with fixed-rate mortgages, even more so in what is likely to be a highly inflationary environment going forward. The days of the 30-year fixed are numbered. (That's not to say that 100% LTV or neg-am mortgages are going to be around much longer.)

Cannot help but think that any J6P that comes out of the other side of this storm with half a cerebrum intact would shun ARMs.

Many of the working joes in my area were steering very far from that nonsense before the shtf... So let them offer ARMs: If no one is buying - no one is selling.

One hopes to see an appropriate parallel to the last book of "A Farewell to Arms". A painful if bitter struggle resulting in the death of a progenitor...

Chomsky
11-04-08, 06:46 AM
There's nothing inherently evil about an ARM. Teaser rates, neg-am options, etc. are another story.

c1ue
11-04-08, 08:12 AM
Actually, I disagree.

ARMs can be a tool for a very select subset of the population.

But they cannot and should not be used by anyone outside of this small group.

Basically if you've got the cash in a corporation but not much income, the ARM is a way to extract the cash out of the corporation in countercyclical fashion.

But for a fixed income/salaried person to get into an ARM is just plain criminal - it is literally gambling. And neither the borrower nor the lender should be in the business of gambling.

Contemptuous
11-04-08, 11:25 AM
C1ue -

Don't forget that the considerable majority of mortgages in Europe are adjustables.


Actually, I disagree.

ARMs can be a tool for a very select subset of the population.

But they cannot and should not be used by anyone outside of this small group.

Basically if you've got the cash in a corporation but not much income, the ARM is a way to extract the cash out of the corporation in countercyclical fashion.

But for a fixed income/salaried person to get into an ARM is just plain criminal - it is literally gambling. And neither the borrower nor the lender should be in the business of gambling.

c1ue
11-04-08, 03:26 PM
Lukester,

In certain parts of Europe yes.

And are those the parts now experiencing a real estate crash?

And how again does this change from my original statement?