The End of ARM's

Yes, Steve, only you have been saying that ARMS are bad. Thank God the Fed is finally listening to you.
And, yes, I do know I am still ignored.

"As the economy continues to suffer from the housing downturn and fallout from risky mortgages, the Federal Reserve Board on Monday voted unanimously to bar lenders from making higher-priced mortgages without regard to a consumers' ability to repay. Regarding higher-priced loans, the Fed's new rules also prohibit lenders from: relying on income or assets that it does not verify to determine repayment ability; imposing prepayment penalties if the payment can change during the initial four years; and making a loan without establishing an escrow account for property taxes and homeowners' insurance for first-lien loans."

http://www.marketwatch.com/news/story/fed-bans-risky-mortgage-practices/story.aspx?guid={11D0179D-4FE3-4ACF-B7F7-646EB1505A8E}&dist=hplatest

Think this doesn't affect Manhattan, where 60% of recent mortgages are jumbo ARM's that Wall Street people with no more bonuses can no longer afford, and only 20% to 30% of their anticipated "bonuses" can be counted as income in any case? Of people who represent 33% of all Manhattan purchases?

Then you're mistaken.

Banks are going to be even more restrictive than this. See BofA's recent pronouncement on what it's doing to Countrywide's business model. That's 25% of the mortgage market. Plus they don't work with mortgage brokers anymore.

No guys, leverage is dried up, incomes in Manhattan have collapsed. This is the end.

I have nothing constructive to add, except to note that the title of this thread should be:

"A Farewell to ARMs."

Opportunities for a good pun only come along so often, and should not be missed.

We now return to our regularly-scheduled programming.

W81 - Comment Of the Day Award goes to you!

West and steve -- incorrect title. It should be: "Swann's Song - Remembrance of Things Past"

West81st, well done indeed!

Funny how none of the bulls wants to address the disappearance of the leverage that drove this market to crazy heights.

Gee, if Wall Street can't issue subprime & Alt-A loans - without verifying income or assets! - and can't package them with Triple-A ratings - go figure! - on what will they pay themselves those obscene bonuses?

Uhm....

This rule is for "Higher Priced Loans" (aka Sub-Prime) not for Conforming or Jumbos that you describe:

"The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems with the original proposal, but the expected market coverage is similar."

Let's get the facts straight before spreading rumors...

Wait, steve had his facts wrong again and posted misleading comments? Shocking . . .

garelj - THANK YOU for the clarification.

ARMs are NOT a thing of the past. Traditional ARMs are still very much used and welcomed, even in coops, so long as the person has assets (at least, 24x monthlies) and has had a decent career that pays within reason (don't heed all of the babble on 75% bonus of income - not very many are subjected to that).

seems like a good thing to me. No ARMS mean a short term dip in the market but longer term it is much better for RE as buyers will be locked into payments and will not be forced to sell when an ARM resets.

No one seems to be discussing how all these short terms issues with credit and financing are actually the building blocks of a much more solid RE market in the future.

LICC, I did not distort anything. Read what I wrote, my facts are correct.

You think it won't have any effect here, think again. What do you think all the Wall Street bonuses were based on? Securitizing garbage.

Before accusing me of spreading false information, read the press release:

http://www.federalreserve.gov/newsevents/press/bcreg/20080714a.htm

Read this, then get back to me on "liar's loans":

In addition to the rules governing higher-priced loans, the rules adopt the following protections for loans secured by a consumer's principal dwelling, regardless of whether the loan is higher-priced:

* Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home's value.

* Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees. In addition, servicers are required to credit consumers' loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.

* Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan. Currently, early cost estimates are only required for home-purchase loans. Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer's credit history.

For all mortgages, the rule also sets additional advertising standards. Advertising rules now require additional information about rates, monthly payments, and other loan features. The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is "fixed" when it can change.

The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems with the original proposal, but the expected market coverage is similar.

"don't heed all of the babble on 75% bonus of income - not very many are subjected to that"

No, not at all!

Look, bonuses are NOT guaranteed income, and they're not going to be paid at historic levels. Banks know that.

This is JUST THE BEGINNING.

steve, bonuses are extraordinary income and taxed at a higher rate than ordinary income. Back in the 90's some mortgage companies wouldn't count your bonus as part of your income. Your income was "base salary" alone as far as mortgage loan officers were concerned. This was after the bond market crash of '94, which followed the Mexican Currency crisis of '93. Recently it's been base+bonus = income from the mortgage bankers point of view. I'd be interested to know if and when this changes.

Notice that Steve moves right past the comment that this turmoil is laying the foundation for a very successful RE market?

Steve is stuck on negative. I t is obvious he has on his FEAR blinders and cant see any opportunities. He posts here all day to stop people from buying to make himself feel better for not being able to see opportunity.

A recipe for success Steve!

An "I stand corrected" would have shown a touch of humility...

"Think this doesn't affect Manhattan, where 60% of recent mortgages are jumbo ARM's that Wall Street people with no more bonuses can no longer afford, and only 20% to 30% of their anticipated "bonuses" can be counted as income in any case? Of people who represent 33% of all Manhattan purchases?"

What does this have to do with the new Fed laws passed...face it, you tried to say its the death of ARM's in Manhattan which couldn't be further from the truth as "higher-priced mortgage loans" are not part of the market here....

"Notice that Steve moves right past the comment that this turmoil is laying the foundation for a very successful RE market?"

In 10 years time - maybe. If you had gotten in after the market turmoil of 1993, you wouldn't have seen a profit for 12 years. So sure, eventually the market will go back up, but it still has a long way to go down yet.

80s, bonuses are taxed at your regular tax rate. However, if they're declared in year x but not paid until year x+1, you still declare them on year x's taxes.

Another steve trait - when he is presented with facts showing that he is absolutely wrong, he tries to muddle the conversation and distort what he said instead of just saying that he is wrong and moving on.

i got a 5.25 5yr jumbo arm!!!!! woo-woo.........arms are the best!

"when he is presented with facts showing that he is absolutely wrong"

Which "fact" is that? I copied the article verbatim, and you accuse me of lying?

"i got a 5.25 5yr jumbo arm!!!!! woo-woo.........arms are the best!"

G-d bless. Let us hope it does not reset beyond your ability to pay.

Now then, pop quiz: what's the reference interest rate, the maximum reset 1) per year and 2) over the course of the loan?

If you took out a loan without knowing that, you're a fool.

steve, bonus is extraordinary income. Non-recurring income. The IRS likes to pretend a bonus is unexpected. Some firms allow you to defer your bonus into the following tax year which might help in certain cases but as far as the government is concerned, bonus is money you weren't expecting so you should it should be taxed at a higher rate (like certain types of winnings).

It's really crazy how much a bonus gets taxed. I mean, you wouldn't believe it. Especially once you hit the AMT.

No 80s, bonuses are taxed at your regular rate. Because it's large will (sometimes) cause the withholding to be at a higher rate (since each payment is annualized), but overall, it is counted as regular income.

Unless you can show me the tax table for supplementary income and how it differs from ordinary income.

"Opportunities for a good pun only come along so often, and should not be missed"

I was thinking about "saving their fannie" for other threads, but, nevermind

"Recently it's been base+bonus = income from the mortgage bankers point of view."

http://www.nytimes.com/2008/07/13/realestate/13cover.html

"The biggest problem is that buyers who work on Wall Street no longer have the guarantee of huge bonuses to bolster their financial status. And even those who continue to get bonuses are finding that banks and co-ops will not let them count all that money as part of their income, because unlike a salary, it can fluctuate wildly."

West81st,"A Farewell to ARMs", well said and much appreciated. Ha!

West81st
I have nothing constructive to add, except to note that the title of this thread should be:

"A Farewell to ARMs."

Opportunities for a good pun only come along so often, and should not be missed.

We now return to our regularly-scheduled programming.

That was great very well said. It gave me a good laugh.

From experience of someone whose income has been well over 50% bonus for many years: Bonuses are definitely taxed at the "ordinary" rates. What gets witheld when the bonus is paid is often higher for the reasons 80sMan lists (although it also depends on who's doing the paperwork for your employer). However, when the tax return gets filed in April, or whenever, salary and bonus both get treated as ordinary income, and all over/under payments during the year get trued up. Bonuses also sometimes feel like they're taxed at a higher rate because they can take a person into a higher tax bracket. However, at the end of the day, other things being equal, a lawyer making $320K salary and $80K bonus and an investment banker making $110K salary and $290K bonus will pay the exact same taxes.