OCCOBRA_IHB
New member
[quote author="freedomCM" date=1243571886][quote author="stepping_up" date=1243548820]I think they have different terms for when they are scheduled to reset the rate, but one thing that will trigger a reset is when your balance goes over a certain amount of the value of the home. I can't recall if it's 110%, 115% or 125%, but the values have dropped by over 25% in almost every city, so the option ARM's should already be resetting.</blockquote>
From what I have learned, dropping market values do not affect the "recast". (reset is an interest rate reset, from teaser to market, and a different animal, usually spelled out in the initial loan docs, like a 7/1)
the 10%, etc above is from the initial loan value, and refers only to deferred P&I (neg-am), from the "100%" initial loan value (whether or not that '100%' was the total market value of the house, or 70% of the appraised value).
Historically these loans were used for people with wildly inconsistent incomes (like film industry people), who would put down a substantial DP. I read that prior to the 2000s, they were typically loans for 50%-70% of the appraised value.
(PS-could a REAL loan person correct any mistakes I made in my reading of the history?)</blockquote>
The problem with the option arms is one most people paid the lowest option to pay on the mortgage which in effect becomes a negative amortization loan. Meaning every time you pay the lowest payment your principal increases. Usually when you reached 110 or 125% of the original principal amount the loan would reset. Ultimately the option arm will recast into a fully amortized loan either at the 110, 125 is reached or after 5 years sometimes 7 years some where as little as 2 years. And that is when you see the payment double. These loans where flipper loans as most people figured they could refinance or sell if things got ugly. And in the day you could put as little as 5 to 10% down as they where Fico driven loans so if you had above 720 you could get these loans all day long with no problem. And that is the case with Alt-A loans that where they where liar loans based on high ficos and as little as 5% down also with the best ficos. Well now everyone who has one of these loans which are all recasting in the next couple of years of close to a trillion dollars worth will not be able to refinance or sell because they are $100,000's underwater and couple that with a lot of people having equity line seconds on top of these loans there is no way to short sell them as the 2nds impedes this. And the big banks in the paper saying they are making money this quarter are cooking the books and the government has allowed this so as the public will believe all is well when in reality the banks are insolvent and are not counting all this toxic mortgage debt in their portfolios. With one in every eight American now late on a mortgage payment or already in foreclosure mounting job losses will cause even more homeowners to fall behind on their loans, there is no way that we are at the bottom and the press release from the NAR this morning saying we are at the bottom made me almost spit up my coffee. The State of California is circling the drain we are heaed for a very rough ride for the next 3 to 4 years at least.
From what I have learned, dropping market values do not affect the "recast". (reset is an interest rate reset, from teaser to market, and a different animal, usually spelled out in the initial loan docs, like a 7/1)
the 10%, etc above is from the initial loan value, and refers only to deferred P&I (neg-am), from the "100%" initial loan value (whether or not that '100%' was the total market value of the house, or 70% of the appraised value).
Historically these loans were used for people with wildly inconsistent incomes (like film industry people), who would put down a substantial DP. I read that prior to the 2000s, they were typically loans for 50%-70% of the appraised value.
(PS-could a REAL loan person correct any mistakes I made in my reading of the history?)</blockquote>
The problem with the option arms is one most people paid the lowest option to pay on the mortgage which in effect becomes a negative amortization loan. Meaning every time you pay the lowest payment your principal increases. Usually when you reached 110 or 125% of the original principal amount the loan would reset. Ultimately the option arm will recast into a fully amortized loan either at the 110, 125 is reached or after 5 years sometimes 7 years some where as little as 2 years. And that is when you see the payment double. These loans where flipper loans as most people figured they could refinance or sell if things got ugly. And in the day you could put as little as 5 to 10% down as they where Fico driven loans so if you had above 720 you could get these loans all day long with no problem. And that is the case with Alt-A loans that where they where liar loans based on high ficos and as little as 5% down also with the best ficos. Well now everyone who has one of these loans which are all recasting in the next couple of years of close to a trillion dollars worth will not be able to refinance or sell because they are $100,000's underwater and couple that with a lot of people having equity line seconds on top of these loans there is no way to short sell them as the 2nds impedes this. And the big banks in the paper saying they are making money this quarter are cooking the books and the government has allowed this so as the public will believe all is well when in reality the banks are insolvent and are not counting all this toxic mortgage debt in their portfolios. With one in every eight American now late on a mortgage payment or already in foreclosure mounting job losses will cause even more homeowners to fall behind on their loans, there is no way that we are at the bottom and the press release from the NAR this morning saying we are at the bottom made me almost spit up my coffee. The State of California is circling the drain we are heaed for a very rough ride for the next 3 to 4 years at least.
