Tsunami yet to come for "prime" mtges

Well, if it's not the original bank doing the refi, they are effectively doing it at 100% ltv which is bad under-writing. And if it's the original bank, they have no incentive since they know you have to stay with them(why should they agree to less interest). It's only if they're worried you might default that it's in their interest to agree to some form of forebearance or rate reduction.

Put yourself in the place of the lending institutions and decide what the risk/reward profile dicates.

Riversider: I'm not saying that there's anything wrong with the picture at all, simply that this will be another contributing source to distressed sales. If, as a home owner, you're feeling smug because you borrowed sensibly albeit with an ARM and feeling insulated from the drop in house prices because you're not selling, this is a reason to worry. This is why I think there should be more noise about this, so people take the opportunity now to refi into a 30yr fixed product.

Agreed, This could be a source of distess. Hybrid arm financing really only makes sense for those with financial flesibility.

It would interesting to go through the mtge docs for a large condo in Manhattan, say 220 RSB and see how many years people have left on their ARMs. I bet a large number of condos were ARM-financed and would have to pony up more money if they refi-ed.

nyc what I want to know is what happens to the liar loan people who no longer even qualify for the mortgage they re in. There are a ton of liar loans that were done in NYC

I am not sure why the end of the 7 year fixed period would yield 9% interest rates, or even an increase in rates. My 5/1 ARM repriced in july from 4.125% to 3%.

Good points, As long as short rates are low, The reset rate should not be materially higher, and perhaps lower. I don't believe Option Arms were a big factor in Manhatan condos, anyone have info to contrary? But not being able to refi into fixed does add to future interest rate risk which may not sit well with the current Zeitgeitst

really its like what is the bank going to do abut the guy who stated he makes 500K Borrowed 1.2 and now has an expiring ARM. Bank asks for docs and it turns out he only make 150K. What happens?

And tighter lending requirments can't be good for home prices going up.

Samadams: those ppl are in trouble, obviously. NYC_sport: correct me if I'm wrong, but I thought all, if not most ARMs have a cap on the interest rate at the end of the fixed rate period but also that the interest rate would float after the fixed rate period. While you may have a 3% rate due to vagaries of rates market, isn't it floating?

10023: IIRC (from my long-ago days on the whole loan desk), typical structure is a special periodic cap for the first reset that allows substantially more movement (say, 3% or 5%) than subsequent resets, which might be capped at 1%. In a reasonably stable rate environment, a 7/1 ARM is likely to fully index at the first reset unless it had a goofy teaser and a favorable periodic cap - a rare combination in this decade of churn & burn lending; even so, 9% seems like a big hop unless rates rise a fair amount from where they are now.

2.5 margin, 5% intial periodic, 2% subsequent.. life cap about 5% above initial....Sounds about right..

The rate on my ARM now re-prices annually at a spread to one year Treasuries for one year periods, with a limit of 2% increase in any one year and a 9.125% lifetime cap. It will be a long time before one year Treasury rates get to 7%.

NYC- Great point. Its just starting in NYC.

The monster that ate your home equity. Run run run for your financial lives.

home equity? Whats that?

well said

dunno, but "home iquity" is (kind of like the opposite of "den of iniquity", spelled sideways, sort of) not being to afford something that's "so luxurious it's sinful"

Don't USE Home Equty Like an ATM
Your home provides shelter and warmth. Your ATM machine provides easy access to cash. If anything should be learned from the recent housing market crisis, it's that the two must never be confused.

I was so sure the ad used to say the opposite..

Personally, I don't think that prime ARMs are a problem because rates are low and will stay low for a long while. Recent buyers won't be able to easily refinance to a fixed rate, however, so they are taking some long term risk. But the lifetime caps on these mortgages are generally around 10%, which we won't see for a while.

I have only ever seen one example of an option ARM in Manhattan. I do think speculators in recent condos with liar loans will be the vast majority of the first wave of prime loan trouble in Manhattan.

Riversider, don't blame the industry ... they were inspired in the first place by people sleeping in ATM vestibules -- ATM as home. The industry merely inverted the concept and marketed it.

Ha!

"taking out home equity" was quite the euphemism wasn't it, since "equity" in accounting is a net asset, not a liability. A wise man once taught me as a child how some people get confused--they look at debt as "cash flow" to be spent, rather than as an "obligation" to be repaid.

I was chastized a few years back for now taking out a h.e. loan by an acquantance who said my money wasn't working for me. He showed me how he used a home equity loan to buy more Condos that were going to go up and make him money. He bought the first day....

He didn't make any money.

Take a look at the piece Noah did on the ?15th? about early ARM resets and recasts.