Option ARM and interest only loans

doesn't matter many of the banks are doing mods and converting them to new io loans that reset in 10 years.

You are probably right that many will be converted. However, many will probably not qualify or cannot even afford the interest only payments. The question is how many will fall into each camp.

It's not about qualifying. The banks don't want to foreclose. On many secularizations they have modified 50%.

secularizations?

dam spellchecker

no...damn riversider.

secularization is when you donate your underwater mortgage to the church

riversider gets over excited when anyone responds.

I can believe they might relax the qualification standards a bit, but definitely not ignored. If a borrower cannot afford the new interest only payments, foreclosure is simply delayed even if the loan is modified.

columbiacounty
14 minutes ago
no...damn riversider.

columbiacounty
8 minutes ago
riversider gets over excited when anyone responds.

So within a 6 minute period when you contributed nothing YOU aren't over excited?

Thk you for the good laugh. Beatyerputzie, where've you been?

Sundaybloodysunday. I loves that song.

Thk you for good laugh guys. Hfs howz that 2 by 4 going for ya?

most people dont qualify for mods.

Ok, I'll settle for an educated guess on the number of option ARM and interest only loan for the NYC area that have not been modified/refinanced.

32,365

now what ?

You're off by 403. Anyway, if that was true, it would mean 32K+ households being pressured to sell.

Sunday where did you get that number from?

Sam, I didn't come up with that number. Marco was just throwing out any number as his 'creative' way of asking me what my point was. I was hoping someone have information about the real number or at least an educated guess so that I will have an idea of the potential impact on prices in the next 9 to 18 months.

the subject has been discussed on here already..do a search with option arm and Im sure you'll come up with something. opryion arms arent gonna be the undoing of the market. commercial RE is monster in the dark.

I did search and I have seen it being mentioned as a potential issue. However, I haven't seen any number specific to the NYC area. Someone must know what the numbers are. The numbers will determine how big of an impact it will be. We are talking about people who will potentially be pressured to sell. Imagine the impact of 500, 1000, or 1500 cases when the number of sales is low.

sunday, I can assure you that the regular posters here are well aware of arms and what could happen. I hear ya..I dont know what it is. Im sure someone else will know

I dont really know how they work, but with rates being pretty low, will the resets still be bad?

no expert here, but I'm pretty sure that regardless of the low mortgage rates available, the resets will still be pretty bad. many are paying interest only or even less than interest only on a monthly basis. people with option arms could see a doubling or more of their monthly payments.

how long until the first reset from when you get the mortgage?

typically 3 or 5 years.

In those 3 to 5 years, the principal likely went up 15% or more. If someone has an option ARM loan that was originally 600K, the principal could have increased to 690K and the apartment could be worth 600K assuming the original purchase price was 750K (20% down payment, and a 20% decline). Many of these people probably can't even afford an interest only loan payment on the higher principal even at 5.5% interest.

The banks were reluctant to do modifications in places like miami they did let a lot of the condos there forclose (probablly because it wasnt primary residence) dont think that would be the case in nyc

from what I understand is that there are a lot of people who shuld never have gotten the loan in the first place and they can not be modified.

I know of a person who had an arm loan wanted a modification just to get a fixed rate was winning to keep paying and keep the jumbo morgage...point being home was auctioned off for less then half of what was owed on the morgage...how does that make sence for the bank why wouldnt they just work with the individual to give them a fixed rate and he would keep paying on that higmorgage wouldnt that be more worth it for the bank? And there seems to be alot of those situations

Everyone keeps talking about modification as if it abates the problem. Is there any data on how long modification delays foreclosure or short sale?

At least at the national level, I got the sense that most modifications don't work for more than a few months.

majority of modifcations fail. It's like sobering up, it doesn't work without counseling.

Is there any reason to believe that the NYC area do not have enough of these option ARM loans to cause a sharp drop in prices?

This product focused more on California than NY.

Sunday-

I had never heard of them. But, I live in a coop, not condo.

No, RS, they concentrated on them there earlier. WaMu was busy spewing its noxious products in the Northeast as well, but it started later. and our downturn started later so the effects will likely be more apparent later. not as extreme as some of the earlier bubble markets, but still not pretty. particularly, from what i have heard, new jersey.

Marco, looks like your dart landed pretty close to the actual number!

http://www.nytimes.com/2009/09/20/realestate/20mort.html

The article actually stated that the NYC area will be 'less sharply affected' by these option ARM. However, with 'roughly 5% delinquency rate on 29,382 option ARM', that would mean over 1400 are in trouble. The peak number was 38,100 in July 2006, which means over 20% refinanced out of them. The question now is, how come the rest haven't refinanced and whether the delinquency rate will increase. Considering the unemployment jump/re price drop started later in the NYC area than California for example, the delinquency is more likely to climb in the coming months as they use up their savings.

hah..and the pats covered for me. nice

Marco, Noah's discussed the difference between recasts and interest resets on his blog. Interest rate resets in many cases help the owner (in theory) because the Fed is keeping rates deliberately low. In practice most of these "affordability products" came with the option of paying interest only or small portions toward the principal; almost no one paid the fully amortizing amount. Something upwards of 80% paid interest only. Originally they would recast at 5 or 7 or 10 years out, except that most had a trigger: if the principal and interest equal 125% of the original mortgage, they become fully amortizing. That's why they're dangerous - the schedules on these things has been moved up significantly thanks to the triggers. Most aren't eligible for mods because so many are 30, 40, 50% underwater - these are height-of-the-bubble products used to keep the Ponzi scheme going. These things primarily existed in California and Florida, but it may wind up kneecapping the banks as they start popping like blood-engorged ticks through 2010.

'...93% of option-ARM buyers select a minimum amount less than the interest due.' Sounds like many of the remaining 29,000 option ARM loans in the NYC area will be in trouble even if prices remain flat since the principal is going up...

http://money.cnn.com/2009/11/24/real_estate/option_ARM_defaults/index.htm

"Fitch says the typical new payment will increase 63 percent above the minimum monthly cost for principal and interest that most (94 percent) option ARM borrowers have been paying. Some payments will double.

As a result of falling home values, most option ARMs cannot be refinanced unless borrowers put more cash into a property. As well, many option ARM borrowers will not qualify for federal help because the value of their loan exceeds the value of their property by more than 25 percent. The bottom line: Huge numbers of option ARMs scheduled to re-cast in 2010 will add to foreclosure totals.
"

http://www.realtytrac.com/contentmanagement/realtytraclibrary.aspx?channelid=8&itemid=8128

"The second wave of ARM resets and foreclosures might come sooner than you think."

http://dailyreckoning.com/the-second-wave-is-already-ashore/

Instead of resetting as expected after the first five years, many option ARMs are so negatively amortized that they are hitting their automatic reset cap.

That means they are resetting early…like right now — with unemployment reaching quarter-century highs every month, and a massive number of homeowners about to receive mortgage bills for two-three times what they are used to paying.

It takes anywhere between three-12 months for most homes to actually go into foreclosure. It’s tough to say exactly when the storm will come. But my guess is the second half of 2010.