[Rodney King]

Look, while people who take out payday loans are too stupid to know what a bad deal they are, I find it difficult to believe that everyone who took out an option ARM wasn't aware of the basic fact that rates would go up if interest rates went up.

[facedown]

The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk.

In other words, those with more than half a brain.

[thoughtomator]

Here comes the first wave... there's a reason those rates on the option ARMs were so low - they're not intended to be a home loan for John Q Public, they're for financing a house you intend to flip back to the market in the short term. Any mortgage broker who sold a prospective homeowner (not investor) one of these loans deserves to have the protection of the law lifted from him.

[dakine]

The Business / Economy used to be the most enjoyable section to read, but between you and your two co-horts beating the same subject to death daily/weekly/yearly/etc., it is no longer....

What is your angle/scam?

[darkwing104]

Say no to "ARM"s

[verum ago]

nah, my favorite is the interest only mortgage payments:
pay little, pay FOREVER

[Porterville]

Why not just refinance another ARM again? Or just sell the house?

[sgtbono2002]

Every day on TV I see advertisements to consolidate debt. take your credit cards and turn them into mortgages. Mortagages that tie your home to credit card debt.

The Mortgage game has no conscience.

[Jaysun]

I have a real estate company and I've found this scenario to be wildly overblown and the dooms day predictions to be without merit.

ARMs have a cap on how much the interest rate can increase, to ensure that the loan will fully amortize. Even the most aggressive ARMs usually have a rate increase cap of 2% per year. Rates aren't going up at that pace but even if they did, the difference between payments on a $150,000 house at 5% and 7% is less than $200 per month. Hardly a crisis.

I'd also point out that home values have in fact gone up since 2004, so the lack of equity argument is nonsense. Lastly, the idea that mortgage companies have been loaning money to any slacked jawed yokel willing to be suckered into an unaffordable house is absurd. If you can't afford to pay back the loan they don't give you one. The last thing they want is a bunch of foreclosures.

[Shion]

Option ARMs aren't such a bad thing if:

1. You understand the terms
2. You don't take the interest-only option every month

There are plenty of people who did neither 1 nor 2 and are now crying that they've been horrible scammed.

My opinion: eh, buyer beware.

Reminds me of the folks who buy insurance without actually reading what their policy covers.

[Gay State Conservative]

Call me old fasioned,but I still believe in the old fixed rate,30 year,20% down mortgage.

[lmr]

ARMs are bad. LEGs are better. *rimshot*

[WashingtonSource]

Remember, folks, Business Week is a left-wing rag. Building a story on weepy anecdotes is good for sensationalist journalism but does not capture the real story.

What was interesting is the allegation that the deferred interest carried on balance sheets of lenders is "phantom profits." In fact, the deferred interest can be recaptured by adding it to the principal balance of the mortgage. However, they almost have a point. To the extent people DO NOT have sufficient equity in their homes, the profits will not be realized.

Another claim that investors and lenders have nothing to lose is simply hogwash and anti-capitalist propaganda. Lenders who hold the mortgages in their portfolio can lose, as can investors who buy tranches that contain the riskier loans. Lenders who sold this product to unsophisticated buyers, however, should be horsewhipped and they will reap the whirlwind when the bill comes due.

There is a good story here, but it has been overwhelmed by the bias and ignorance of the people who wrote it.

[pissant]

It pays to fully understand the terms of your mortgage.

[mkjessup]

(Groan) "Lost ANOTHER one to Di-Tech!"

[ladyinred]

I knew this was coming. We sold our home 2 years ago during the boom, and were shocked to see 100% loans being offered to people trying to buy our house! I had never seen such a thing. I knew trouble was coming eventually. For us, it was great, we made a good profit, paid cash for our new home, and have no mortgage to worry about.

[roaddog727]

Whenever I heard the ads for ARMS, I would run, screaming NO! in the opposite direction.

[free_at_jsl.com]

Caveat Emptor

[Brytani]

With all the doom and gloom and "they're idiots" messages out there about ARMS and Interest Only loans, depending on the area you live in, they can be a great way to go.

We took out a 80% interest only, 20% fixed rate mortgage two years ago. Last year our home value increased 24%, this year we are on target to increase by 28%. I live in a high growth market with little end in site. On top of that, paying interest only on the first mortgage gave us enough tax breaks that for the first time in our marriage, we actually got money back from the government, instead of owing.

For the last two years, barring a 4 month period of time when we had some severe financial problems and couldn't, we've put an additional $300/mnth onto our second mortgage. Anyone who's ever looked at a 30yr fixed amortization table knows that's WAY more into principle then you'll put in for the first two years of the loan.

At the end of our two year rate lock-in, we already have a broker who's putting together a 30yr fixed rate, typical mortgage for us.

Because of the extra money we've put into our second mortgage, our equity and money we've socked away by paying off credit cards we were stupid enough to have balances on (and not using again) we will take a small portion (under 10K) of our equity. This will pay off our 2nd mortgage completely, plus closing costs for the re-fi.

My monthly payments will be lower then I'm paying now, I'll have well over 100k in equity in the home and will have a mortgage slightly under 80% of the original selling price of the house.

I'm not saying these types of loans are for everyone, however in areas of fast growth, for people who do not plan on staying in a home for years etc, it can be a good way to go.

I don't regret our decision at all. Though our next home purchase, when we move out of S. Florida will be at minimum 20% down and a 15 year mortgage. (Thank you Dave Ramsey)

[NewLand]

POPPYCOCK!!! This article is way out-of-bounds. See below.

Mortgage rates dip to lowest level since early April
By Associated Press
Thursday, August 31, 2006 - Updated: 02:20 PM EST

WASHINGTON - Rates on 30-year mortgages fell for a sixth consecutive week, providing home buyers with more relief from an earlier rise in rates.

Mortgage giant Freddie Mac said Thursday that 30-year, fixed-rate mortgages dipped to 6.44 percent this week, down from 6.48 percent last week. That was the lowest level for 30-year mortgages since they averaged 6.43 percent the first week in April.