Hybrid Loan Time Bomb (Do you have an ARM mortgage?)

321gold ^ | January 4, 2006 | Mike Shedlock

[Czar]

Thanks, Travis. Ours is a very low fixed rate. We did this one about two years ago.

[Kokojmudd]

Yada, yada..... I got a 3/1 Arm, 1 1/2 years ago at 3.5%..... So I got a very low payment, I got accelerated principal payment, in year 4 it can only rise to 5.5% (still below current market rates) and in year 5, if I want to I can refi. So no thanks, I'll keep the ARM.

Heyyyy...doncha know the market is scheduled to crash before year five, sending millions into soup lines and "hoover-villes." You're supposed to be a-scared! You need to start buying MREs and crates of tuna.

I heard the koreans were able to construct homes out of tin cans during the korean war..so I am saving ALL my empty rosarita refried bean cans for my future construction project.....and you should too....especially since you started all of this by getting an ARM!

[Dems_R_Losers]

The only reason refis will dry up is if the government succeeds in shutting down Fannie Mae and Freddie Mac and thus dries up the capital for the lenders. As long as there is still competition in the mortgage market, lenders will offer refis to poach other lenders' customers and get the servicing assets on their books. They don't even have to make money on the originations, because they make money on the servicing. Lenders have survived declining markets before without a credit crunch. And declining markets usually bring declining interest rates, so not that many ARM borrowers will need to refi anyway.

A bigger problem IMO is skyrocketing local property taxes that stretched homeowners have not budgeted for and cannot pay.

[Deo et Patria]

If all these folks default (which I doubt) then alot of banks are going to own homes. Do banks want to own homes????

Sounds like a good buying opportunity.
________________________________________


I know a number of savvy real estate investors waiting right here in NY for that exact scenario. We'll see if it materializes.

[Travis McGee]

Then you have no worries, and this article does not pertain to you, but to the millions of Americans who are spending half of their salary to pay "interest only."

[Pondman88]

Good screen name!!!

A friend of mine had a picture book from his Uncle, who served in Korea. The pictures showed some attractive "mama sans" and Korean women gathered around the US trash cans, apparently the Koreans would go thru the trash, gathering stuff.....life's a b----.

[Travis McGee]

All factors. It'll be interesting to watch it play out.

[rb22982]

I bought my first home in March 2005 at a fixed rate at 6% at 23. I would have gotten one a year earlier but in college I didn't know or care about credit and let 2 low balance cards go unpaid when I moved so I had to spend many months on credit repair. NEVER will I make that mistake again. I wish I had gone with 5% on a 5/1 though as I doubt we'll be in there for that long and even if we do the amount of money saved off the first five years would easily offset any loss off of the next 1-3. Fortunately, my income is rising every year by leaps and bounds (up almost double in the last 2 years) and I expect that to continue for at least several more years. I intend to pay off principle more and more as my income level rises.

[jpl]

I still say that if a person doesn't understand fairly simple concepts such as principal and interest, or doesn't know how to go online and look at his monthly statement, or doesn't know how to negotiate on his own behalf, he has nobody to blame but himself.

[Travis McGee]

Amen. But that group covers millions of Americans who will someday claim they were hoodwinked, and "didn't know the monthly payment could go up."

[planekT]

Ha! Remember 1987? When interest rates get high enough you can't borrow $hit.

[Jhohanna]

And they say there is no such thing as a real estate bubble. You have to truly wonder how many of these people are going to default/bankrupt/foreclose, and what effect that will have on the housing industry.

I *wish* I could take out a fixed-rate for 200k. That won't even buy me a studio in San Diego. The cheapest I can find a home for is pushing $350k. *Feh* Anyone need a great systems engineer with 15 years experience in Colorado Springs?! :P

[RegulatorCountry]

I'm curious about something, here. All the dire statements about ARMs converting sound more than a bit hyped, to me. I've only had one ARM, used it to purchase some land that I am now building on, wasn't concerned about the end of the five year fixed period because I knew I wouldn't be in it at that time. I basically took the cheapest money I could find, as far as upfront cost and monthly payment. I put 20% down.

But, the thing that strikes me is, so many people seem to believe that a 4.375% 5/1 interest only ARM is going to skyrocket upon conversion. I just don't foresee the situation that would produce even 8% on average, let alone an early-eighties scenario. So, you pick up principal payements after the I/O period ends ... who are the idiots that went into one of these, not knowing about this? A 2% cap would have made that 5/1 ARM 6.375%. Even with principal payments, that's a long way from the end of the world.

I've honestly begun to believe that all the hysterical negativity is being put out by a bunch of gold bugs, trying to scare capital into "their" neck of the woods.

[river rat]

Thanks for the ping...I would have missed this..
NOTHING shocks me anymore - involving the stupidity of the "average citizen"...

Government Schools, together with the gradual polution of the gene pool - successfully dumbed down the population to the point that we can soon expect the election of a Hillary or someone equally unfit for office..
Look how close Gore and Kerry came...

On the debt matter -- at my age - I am fortunately in a position where I don't owe anyone any money for a longer period than my monthly credit card bill...which is paid in full each month.

My wife and I have always lived beneath our means, and I'm pleased to see that our children have seen the wisdom in that approach...

The cavalier and reckless manner in which some folks deal with their financial matters is infuriating -- because their greed and irresponsibility directly adds cost to everything I buy or pay for.

Semper Fi

[Jhohanna]

Those of us on the sideline get in.

Hear Hear!!!! And we'll be able to do it right too!

[Jhohanna]

It's what they have instead of equity: a giant SUV and a big screen TV.

Ah yes... those will be the first things repo'd too. :P

[K-oneTexas]

Me too. I still have my ARM from the 80's and I've never had a rate above 7%. Its based on the SF Reserve Board rate. I'm at 4.25% now. But I don't think they can just unilaterally cancel or convert those in place. I think it would mean no new ones.

[Calpernia]

>>>skyrocketing local property taxes

Bumping that!!

[rb22982]

Some of them AREN'T told that. I stopped a friend from getting a 3 month ARM earlier this year who had no idea!

[finnman69]

thanks, already had that one bookmarked