[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.

[thoughtomator]

These are option ARMs, not regular ARMs. Option ARMs can adjust monthly. It's a specialty product designed for an investor, not a person who is going to live in the home being bought. Banks may not want foreclosures, but if they can resell the mortgages at a lower risk level than the actual, they'll still make money of the transaction. Mortgage brokers who are paid per loan sold regardless of whether it works out in the long term don't have to care about the risk of default any more than it takes a bank to approve it.

[art_rocks]

This assumes the real estate company is ethical and honest.

I would say most are but there are those few that are in it to make a fast buck.

The local paper had an article about people buying more house than they should. One misstep, injury or out of work for a short time and they lose the house. The paper pointed out one house which had been sold 3 times within the last 5 years and each owner defaulted.

I'll see if I can get the link.

[Moonman62]

Look at the posts that people are making. Articles like this are an opportunity for people to feel intellectually and morally superior to others.

[defenderSD]

In my opinion, Business Week now slants their articles to support the democRAT party. Back when Clinton was president, Business Week was much more positive about the economy and wrote articles about how inflation is actually lower than the official BLS inflation rate numbers. Now that Bush is president, Business Week has turned negative about the economy and they write a lot of unsubstantiated negative news stories about the economy and corporate America. Before long it's going to be the conservative websites against everybody else in the biased liberal MSM.

[dalereed]

"I've found this scenario to be wildly overblown and the dooms day predictions to be without merit"

Not true in So. Calif., not only are prices going down but people with ARMs on average homes are getting hit with increases of $450-500/ month in their payments. They can't sell because current market is $50k+ below their mortgages and forclosures are increasing.

[Rate_Determining_Step]

Ya, thanks for confirming this. I got a interest only ARM. I can pay more and do when I can that goes directly to the principle. My rate is locked for 5 years and then can only go up two percent.

Seeing was going to move in the next two years, this is the perfect product for me.

NOT TO MENTION, I'm in Seattle - arguably the most consistently hot market in the country. While everybody else is leveling out, we're still climbing. The geography of the Puget Sound is like an hourglass with all the action in the middle. I'm 10 miles from downtown.

Someone please tell me I made a bad move.

[napscoordinator]

Thanks for that education. I did not know much about this subject and while reading thought that millions were going to lose there homes. Dang MSM got me again. lol. You would think I would learn that the spin never stops with them. Your very right 200 dollars a month (on a 150,000 dollar house) will not make these folks destitute.

[GOPJ]

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.

The doom and gloom folks hate facts - but thanks for presenting them anyhow. :)