What kind of ARM jumps 6% in one shot? How long was it at 6%?
I retired from mortgage banking in July, 2000 which was about the time the “Big Bank of the Northern Hemisphere” started introducing various loan programs such as no income verif., low doc-no doc, financing of 2nds for DP’s and other creative ways to “make it easier” to qualify for a loan.
At the time there were basically 3 types of ARMs; 3-1-1, 5-1-1 and 7-1-1 (or 3-2-1, 5-2-1 and 7-2-1) with no prepayment penalty and several had different indexes (libor, coffee just to name two). ARM loans could only adjust after the initial 3, 5 or 7 year cutoff and depending on what the market was doing could only adjust upward or downward by 1 point. Have they removed the caps?
I’ve read where there are now ARM’s which do contain prepayment penalties as well as negative amortization which I thought had been made ‘illegal’ after we went through a bad stretch back in the 80’s with the GPM’s, EOM’s and other creative financing. Have terms changed that drastically since I left the business?
I cut my teeth on mortgage loans back when people were panic buying before interest rates went up to 15% or 17%. They felt as if they’d be priced out of the market because interest rates could only contine to rise so they’d accept interest rates as high as 17% as they just knew rates would eventually reach 25% or more. Then went through the bail out certifying Ginnie, Fannie and Freddie pools.
Seems as if lenders didn’t learn their lesson from the previous run of creative financing.