One-in-four homes resales in Orange County in the second quarter — OK, 25.1% — were residences that had been involved in a foreclosure in the previous 12 months.
That’s the results of a nifty study done by our pals at DataQuick. (For you conspiracy buffs out there: No, DataQuick sales figures DO NOT include the homes taken back by bankers in a given period.)
Foreclosure frequency in O.C. looks pretty good vs. the rest of the state, where 40% of second-quarter sales had previously been through a foreclosure. (And it was 73.3% in Merced!)
How the rest of the state’s most-actively selling counties shape up with this stat:
| Rank | County | Foreclosure Q2 share | Rank | County | Foreclosure Q2 share |
|---|---|---|---|---|---|
| 1 | Merced | 73.3% | 22 | Calaveras | 34.0% |
| 2 | San Joaquin | 69.6% | 23 | Santa Barbara | 33.6% |
| 3 | Stanislaus | 69.4% | 24 | Ventura | 33.0% |
| 4 | Yuba | 66.0% | 25 | Lake | 32.8% |
| 5 | San Benito | 63.0% | 26 | Kings | 30.0% |
| 6 | Sacramento | 61.4% | 27 | Los Angeles | 29.1% |
| 7 | Sutter | 60.2% | 28 | Shasta | 28.2% |
| 8 | Riverside | 58.5% | 29 | Sonoma | 27.5% |
| 9 | Solano | 57.3% | 30 | Alameda | 27.3% |
| 10 | Madera | 56.2% | 31 | El Dorado | 25.9% |
| 11 | San Bernardino | 55.0% | 32 | Orange | 25.1% |
| 12 | Imperial | 53.6% | 33 | Santa Cruz | 22.0% |
| 13 | Monterey | 52.5% | 34 | Butte | 17.7% |
| 14 | Kern | 49.5% | 35 | Tuolumne | 17.6% |
| 15 | Contra Costa | 46.7% | 36 | San Luis Obispo | 17.3% |
| 16 | Fresno | 43.0% | 37 | Santa Clara | 16.5% |
| 17 | Placer | 40.9% | 38 | Nevada | 15.5% |
| 18 | Yolo | 39.9% | 39 | San Mateo | 13.5% |
| 19 | Napa | 37.5% | 40 | Humboldt | 8.7% |
| 20 | San Diego | 37.2% | 41 | Marin | 8.3% |
| 21 | Tulare | 36.4% | 42 | San Francisco | 5.1% |
Other real estate news:
- Feds seize, sell O.C. bank. 1st local failure since ‘94
- Calif. homeowners quickly lose home after 1st warning from bank
- O.C. home slump equals $411-a-day loss off June ‘07 peak
- Ailing South County condo project to become senior housing
- North County sees biggest rent hikes
- O.C. calls up 23% for advice on late rent, house payments
- Rents go flat at O.C.’s 3-bedroom townhomes
Conspiracy buffs? Is this the new name for people reading the newspaper wanting all the facts?
Conspiracy buffs? People who want to know the truth: no hidden agenda no media spin. no mixed reports. Only Facts and investigative report.
And competition is fierce for that 25%. This won’t last forever. Clearly, normal sellers are letting this whole thing pass, as evidenced by the relentless downward trajectory inventory has taken all year. Phantom, schmantom.
That Press Democrat article is talking about resets. That’s so 2007. Someone tell them everyone is getting a rework. You don’t even have to ask anymore, much less qualify.
Never question Jon’s spin or you will be labeled.
Ah Provider. You still have to be able to make the payments.
Does anyone know someone who gets to keep their 1% teaser rate AND get a reduction in their principal?
Like I said, this stimulus package will create a false bottom, dragging this thing out even longer.
It’s unfortunate, but that’s govt for you.
“Conspiracy buffs…”
More like Hale Bob rejects.
I’ve heard several stories of people getting a 5%-ish rate fixed for 5 more years (I/O). The 1% you are talking about doesn’t even exist at this point, all Option ARMs step up in rate all by themselves. Just another trumped-up, exaggerated story.
That should be step up in payment.
Marcia: A friend of mine in a neg am, whose payment was fluctuating after the reset, had her loan reworked. She was not behind on her payments. She just called the bank to see what her options were and they told her: “your account has been flagged.” She said for what? They then proceeded to reduce her rate to 5.25% fixed for five years, IO. They are being proactive as it is in the banks best interest. Why wouldn’t they…you know?
Mullie-
At lot of folks can’t afford the 5.25% fixed, even at IO. But the banks will just shove those off on the rest of us taxpayers. Should make all you RE agents happy.
Provider is starting to sound like the black night from Monty Python and the Holy Grail. He keeps getting a limp chopped off…”It’s just a flesh wound”!!
Provider,
Why do cheer people getting their loans reworked? What about responsible people who already have home loans that they make payments on? Shouldn’t they get a 5% rate also? What about people who waited on the sidelines who didn’t get in over their heads? Shouldn’t those people get a 5% rate also?
I do not see how you like irresponible people to get benifits that repsonsible people don’t. How is this fair and why are you a cheerleader for it?
And a lot can afford a 5,25% I/O. That’s really your only hope at this point, as subprime ARM issues are trailing off.
“What about responsible people who already have home loans that they make payments on?”
I ask this question here often. What about the 65% of people who own who have gotten the shaft?
I won’t get a re-work, so I think it is fair that I speak for this group. Hell, I wish I could get a 20% discount on my home.
Provider,
You never answered this question before. Why the name change from Thoughtful? You are not fooling anybody. Where is your integrity?
Cheerleading is in the eye of the beholder. The crew here celebrate nonstop every shred of bad news. Are you serious?
“Irresponsible people”? Huh? Taking an ARM makes you irresponsible? I know NBI will agree with you, but I sure as hell don’t.
In the boom days people said “this will never end”. Basically that everything is more glorious that it really was.
Now in the bust days people say “this will never end”. Basically that everything is more disastrous that it really is.
So I take the happy doomsdayers with a grain of salt like I did those that thought money grew on trees.
Like supposive UFO sightings, so are the doomsdayers playing the game: good business.
Option ARMS are a great product. If there were no option ARMS ten years ago, I would be a renter with no money. Beach homes would have been unavailable to me. It would be a shame if this great product goes away in the name of “social justice”.
Heres the basics on the foreclosure provision of the new law.
“FHA foreclosure rescue - development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.”
Also, any sort of “rescue” does not apply to those with an HELOC. Meaning you would have to pay off your HELOC, before you would be able to have your original loan refinanced.
So what percentage of distressed borrowers in Orange County have loans under 550K and have no HELOC?
Taking an arm was not irresponsible if you could make the the 30 year payment when it adjusts. I did plenty of arms for people and they just needed the two years to get there credit in line. Some did and others didn’t. I loved getting calls from people I did adjustables for consolidation and 18 months later they call back and they have a 700 score up from 580 and they are ready for thier 30 year fixed. It was rare but the plan was sound. It was the people doing option arms ( neg am loans) and the ATL-A people that new they could never afford the home but were banking on cashing out equity that were irresponsible. They should have been accountable if they gamble and loose. No bail outs for them!
Marcia is right a majority of neg am borrowers could barley afford the 1.25% and yes it goes up each year but no where near the fully indexed rate where it jumps in the 5th year. Those people won’t get bailed out. Either will the ALT-A people who got IO’s for 5-10 years and when they try to get out and have to qualify using real income they are 75% DTI.
If the phone volume in the little loan office I worked at is any indication of what’s out there we are in for a long slide and a leveling off at bottom with little gains for years.
Samson most have heloc’s! Do you know the DTI limitation?
Marcia doesn’t understand how Option ARMs work. Strange, considering she’s in banking. Marcia, please tell us all the minimum payment for a $100,000 loan with a 1.25% teaser rate?
Option ARM payment:
$100,000 Loan Amount
1.25% Start Rate
Index (MTA) 2.855% (July 2008)
Margin 2.75%
Fully Indexed Rate 5.605%
Fixed Period 1 Month
Payment Cap 7.5%
Minimum Payment Year 1 $333.25
Minimum Payment Year 2 $358.24
Minimum Payment Year 3 $385.11
Minimum Payment Year 4 $414.00
Minimum Payment Year 5 $445.05
Interest Only Payment $467.08
Fully Amortizing 30 Year Payment $574.39
Negative Amortization will make the fully amortizing payment be higher by some amount.
The ONLY way these payments would skyrocket, the way so many wish, is if interest rates went through the roof…..as in a lot.
Assuming stable rates, the loan above (which had been making the minimum payment) would recast at month 61, with a balance of $105,575.22. The payment for the remaining 25 years (fully amortizing) would be $655.97.
So Provider, what you are saying is that 5 years out (from 2005), there will be a whole new batch of problems?
By the way, I was on option ARMs from 1987-2005, so I am well aware of how they work. I never once refinanced, and rode the interest rates down all the way to a 4% fully indexed ARM. Of course now I would do fixed.
The problem I see is that buyers bought $800,000 homes, so can even afford the initial resets.
So yes, for $100K, most could afford the $655.97/month in loan payments. Now multiply that by 8, and you start to see the problem.
“can” should be “can’t”
Meredith Whitney is married to a TV Wrestler isn’t she?
I wonder if the number of distressed properties that have sold this quarter is much different than the last. As sales for nondistressed properties pick up like we have seen, it is going to push down that percentage. 40% to 25% is rather notable.
Well, most borrowers who bought $800,000 put money down. Wachovia’s average LTV on Option ARMs at origination was 71%, it is now at 85% adjusted for negam and value declines. The reason I said you may not understand them, is that you seemed to infer that the recast has the double-whammy of rate and adding amortization (going from “1%” to the moon). On day one, Option ARM minimum payments assume principal payments (albeit at the start rate). Most people do NOT understand that. Most people would answer the question above with $104.17. No?
“By the way, I was on option ARMs from 1987-2005, so I am well aware of how they work. I never once refinanced, and rode the interest rates down all the way to a 4% fully indexed ARM.”
Bravo.
Provider: I’m not in the banking or RE business, but my understanding of Neg Am loans is that when they do reset (let’s use after year 5 just as an example), that the payment is amortized over the remaining life of the loan (in this example, 25 years). So, that is going to increase that payment. Also, the principal balance will be higher if they have been paying less than the I/O payment, so that, too, will make the re-cast payment higher.
But, even excluding those adjustments that I believe make the fully-amortizing payment higher than in your example, the 30 year fully-amortizing payment is approximately 72% higher than the minimum Year 1 payment. To me, that is skyrocketing. And the percentage does matter. Again, using your numbers, let’s make that a $600,000 loan instead of $100,000. The minimum payment in Year 1 is $1,999.50. The fully-amortizing 30 year payment is $3,446.34. That’s a difference of $1,446.84 per month, when the borrower started with a payment of just under $2K. Again, this is using your numbers (simply multiplying the Year 1 min. payment and 30 year payment numbers by 6), without adding what I think are other adjustments that would make the re-cast payment higher.
That is my understanding of these loans. If I am missing something or my math is off, please show me my mistake. If I am correct, then my personal opinion is that the payments will skyrocket.
You are right, waiting, but all those things are already in my numbers. Yes, year 1 and year 6 payments are very different, but each year they are getting closer. That also assumes every single payment is made at the minimum. The fix I see is that there will be a 5 year I/O window added at month 61. The payment in the example above would be $493.12 (on the recast balance of $105,575.22).
Of course, that makes the problem worse 5 years later, unless the loan maturity can be pushed out. Maybe these will have to be new loans.
Provider- Most fully indexed rates for A borrowers during the boom were in 6’s and if you didn’t have A credit or had limited doc loans they were from 7% to 8.5% and the caps as high as 9.5%. LO’s were jacking the fully indexed rate up becuase the borrower didn’t care becuase they thought they would never have to pay a fully indexed rate and were counting on huge appreciation. LO’s did that to get back points. They often enticed borrowers in by paying all the closing but jacked thier fully indexed rate 2-3% higher to make 4-5 points on the loan. 500k with 5 points on the back is 25k and the borrower never see’s back end points on the docs just one line that says lender credit to broker and a $ amount. Most read that as a credit if they read their docs at all! Some offices specialized just in neg am loans and did tons of them. Remember too that the loan after it recast are most likely adjustable if you don’t have A credit. Some A borrowers were offered fixed, full am loans after recast.
Your 5.6% fully index is at par. Any LO doing option arms knows they never pared those loans out. They were the money makers on rebate points………………
And this is why I never did one!
Anyone find out what the max DTI (debt to income ratio) is for the bailout loans?
Provider, most people were not putting any money down. They were taking an 80/20, 80% with the first bank and borrowing their 20% down with another lender at a much higher interest rate. I personally know of several people who did this.
meredith whitney is on the front of fortune magazine
provider couldnt make the front of the pennysaver
You lost me a little. During the boom, “A” borrowers could get a 30 year fixed in the 4.75%-5.5%, even stated. When you say “jacking the fully indexed rate” I think you mean “margin”. Yes, some Option ARMs have higher margins, but 2.75% is by FAR the most common. All loans are adjustable after the fixed period is over.
“Provider, most people were not putting any money down.”
Bullcrap. Define “most”, and I don’t mean anecdotes.
Ok, first time homebuyers. I know the move up’s put money down; I’m talking about first time buyers. Oh and all those “flippers”
……….. meredith whitney is dreamy……….
………. provider is a relic of the housing bubble……..
……… provider has a future in the housing bubble museum……. in the option arms / stable rates exhibiit…….
The assumption that no one puts money down is way off the mark. You all like to think the whole world is made up of median income earning first time buyers….it is not. So, please don’t take broad loan statistics and then mold them to fit into your tunnel-vision ideas. Do you really think that it will behoove you to be so out of touch when your future is on the line?
No they started offering fixed at Home123 in 2006 for A borrowers. I worked there. You keep reffering to A borrowers that went full dock. How do you think LO’s got 4-5 points on the back? Have you ever seen a rate sheet? They pay you for charging higher rates. Any LO’s out there to back me on this?
“Oh and all those “flippers”.
Flippers put a lot of money down, and then poured cash into the properties as well.
mav, you have added much to this discussion. Typical bear reaction, the personal attacks are worse when the converstation doesn’t fit their agenda.
How is my future on the line?
And a lot didn’t.
L/Os earning 4-5 points are/were a distinct minority. I see we have many Argent (and other) refugees who don’t know of anything else
wow, look at Marin County, only 8.3% foreclosures. That is where real rich people live. I guess there is a premium to pay for clean air and absence of power plants.
……….. oh contraire………… i completely understand how long this mess is going to take to play out……you laid it out as plain as day…. home values are going to be dropping for years……… and years……
I don’t have much time today for lengthy discussions but what I didn’t see mentioned yet is that payments often increase while the homeowners’ income* decrease. At least in today’s and tomorrows environment. That has got to hurt one way or another.
* Income from a fixed income job that is no longer your job, income from a commission based job where the sales volume is down, income from cash out refinance, income from the stock market, etc.
Still at 2-3 points on the back that would make the fully indexed rate much higher than 5.6%. If you only knew what was going on in those offices you wouldn’t be argueing my point.
You can show me stats and argue you all you want but I know what I saw with my own eyes in the last 10 years of doing loans and it is bad.
I know loans through 07 and those are going to be the ones defaulting. I don’t know the new program guidlines but the new loans aren’t the problem.
Bubble’s disaster (this is commerical, not residential):
“The percentage of outstanding property loans, including those that are in arrears at least 60 days and in foreclosure, was 0.45 percent, up 0.01 percentage point from May and up 0.21 point from a year ago, the bond rating service said.”
Now THIS is cheerleading. There is not a single person in the US of A that could possible benefit from this, even if it were really bad.
“Still at 2-3 points on the back that would make the fully indexed rate much higher than 5.6%”
The 5.6% already had YSP. The high costs of which you speak were more of a subprime phenomenon. There were very, very few Option ARMs (relatively speaking) made to subprime borrowers. Most subprime loans were 2,3 and 5 year fixed.
“Income from a fixed income job that is no longer your job”
Please elaborate.
Feel free to do your own research. The “subprime” sheet has no negam loans on it and the “alt a” one has the margins in column 49. Please note the margins are skewed higher by all the 5,7 and 10 years ARMs out there.
The New York Fed has a new spreadsheet. At the above link, scroll down to “US Revised”. They have a sample of $9 billion in Alt-A and subprime ARMS. Go to rows 29 and 30. You will see that the Alt-A average fully indexed rate is 6.04% and the average margin is 2.91% (includes normal ARMs). You will also see that subprime average fully indexed rate is 9.13% with a 6.02% margin. These are almost entirely fixed rate ARMs, not Option ARMs. Most Option ARMs fall into the Alt-A category.
Yes the #’s are skewed with arms that the LO’s charged more up front fees in points and junk fees to keep the teaser rate low.
I wonder how many people bought homes they don’t even care for just to make that fast buck? Do they really want to keep that home? We can help them all they want, they just want to get out. I could be wrong but some buyers didn’t even care what the house looked like. There’s a lot of ugly homes out there. Will there be a stipulation in a new agreement (if it’s lower) in selling the house and still make a profit since the home debtor got a free pass?
“Yes the #’s are skewed with arms that the LO’s charged more up front fees in points and junk fees to keep the teaser rate low.”
This makes no sense, and is not even relevent to a discussion of what the future holds rate-wise for Option ARMs. You are definitely suffering from tunnel vision.
The remaining mortgage must be “affordable” to the borrower. And while no rule is given in this section as to affordability they do talk about affordability in two places. For FHA secure a loan can be refinanced to 35% debt-to-income (DTI) and for this program only loans above 31% original DTI qualify to be refinanced. So the DTI number is either 31% or 35%.
“And competition is fierce for that 25%. This won’t last forever. ”
LOL… you’re right. the supply will only increase by 2-3x
You were talking about margin and in the case of arms they were low but not with option arms after the LO saw what they could make if they charged higher rates.
When you have an arm with a teaser rate you want to keep the rate low and charge more up front fees but with option arms all the borrower sees is 1.25% and most could care less about the fully indexed rate becuase they thought the appreciation would out wiegh the differnece beinga dded to their principal. This is why the margin looks low in the stats you pointed out.
Shannon if what you say is true people are in trouble, but what do think the back ratio is? Remember some of these people racked up some serious debt hoping to refinance it later.
You keep saying “fully indexed rate”, the term is “margin”. Nothing you said changes the fact that MOST margins are in the 2.75% range, which is fully supported by the link I posted. I fail to see how your argument dispels the spreadsheet and makes “the margin look low in the stats I pointed out”. I can’t convince you that you didn’t see what you saw, but it is minute in the larger picture.
“Remember some of these people racked up some serious debt hoping to refinance it later.”
This also makes NO sense. How do you know the purchase money of refinance borrowers you worked with will “rack up” huge balances after you send them on their merry way? You don’t, you are inventing facts now.
“or refinance borrowers”
Option ARM… comical. if you can’t even afford an I/O payment what the hell were you doing buying a home at inflated prices. nobody’s going to make the payments anyway when it resets and the home is worth 40% less.
Why do WAMU, Wachovia, Downey, and Countrywide all have double digit delinquency rates on there option ARM MBS pools if people haven’t seen a recast yet? Who cares about the recast, they aren’t even making the minimum payment. The delinquency rates are just as high as subprime now.
More thoughtless info being provided here, when you can see how the pools are performing, then you would see that people are not making their payments on their option ARMs. Minimum or fully amortized, it doesn’t matter when no payment is made.
I posted this last week and in light of the OptionArm discussion it seems worth repeating.
Someone above used a 100K loan amount to try to show that the new payment when the loan is recast is not a problem. Maybe no big deal on a 100K loan but kick it up to an amount close to what was more normal in our nicer areas and it IS a problem.
–
# pdu Says:
August 1st, 2008 at 2:30 pm
Just a couple of thoughts…………
There was a near consensus a couple years back that real estate in OC NEVER went down.
It was also generally agreed that one could profit more on higher-priced properties.
The financial meltdown has decimated the low priced markets partly because many of those buyers were not qualified to buy, yet were able to obtain financing through the ridiculous subprime mortgages offered. The resetting of these mortgages raised the borrowers payments and the result of this is plain to see.
What seems to be ignored by those wearing RealtorGoggles and others cheering every hint of improvement in the market is the irrefutable fact that many of the buyers of upscale properties (I know, too vague:) used interest only or adjustable rate mortgages, without which they would have been unable to buy what they did.
These are your Alt-A loans everyone speaks of as being the next problem to face the market. OptionArm mortgages among them. These resets are just down the track and the blazing headlight is coming on fast.
OptionArms are a great tool for the astute borrower in a rising market and a disaster for those who stretched to “move up”. The information coming out seems to show somewhere around 70-80% of OptionArm borrowers have been making only the minimum payment.
Just a couple of thoughts…………
There was a near consensus a couple years back that real estate in OC NEVER went down.
It was also generally agreed that one could profit more on higher-priced properties.
The financial meltdown has decimated the low priced markets partly because many of those buyers were not qualified to buy, yet were able to obtain financing through the ridiculous subprime mortgages offered. The resetting of these mortgages raised the borrowers payments and the result of this is plain to see.
What seems to be ignored by those wearing RealtorGoggles and others cheering every hint of improvement in the market is the irrefutable fact that many of the buyers of upscale properties (I know, too vague:) used interest only or adjustable rate mortgages, without which they would have been unable to buy what they did.
These are your Alt-A loans everyone speaks of as being the next problem to face the market. OptionArm mortgages among them. These resets are just down the track and the blazing headlight is coming on fast.
OptionArms are a great tool for the astute borrower in a rising market and a disaster for those who stretched to “move up”. The information coming out seems to show somewhere around 70-80% of OptionArm borrowers have been making only the minimum payment.
To put a little perspective on this — correct me if I made any errors:
700K Option Arm
Ist yr. min pmt - 2332
2ndyr. min pmt - 2507
3rdyr. min pmt - 2695
4thyr. min pmt - 2897
5thyr. min pmt - 3115
This is based on a 1.25% start rate….some were done at 1% and a 6% fully-indexed rate.
Same 700K @ 6% - 30fixed would have been $4196.
Easy to see the appeal.
Problem is after 5 years the loan balance has grown by $96,006.
At the five year reset, IF they can refi to a NEW 30 fixed, IF the home appraises and IF they can qualify for the new 796K loan at today’s 6.25% (dream on:) the new payment would be $4901.
If they can’t re-fi to a NEW 30 fixed and the only choice is to have the OptionArm reset, the new payment is based on a 25 year remaining amortized loan of 796K at say 6.25% yeilding a pmt of about $5250.
Anyone see where this might be a problem for some folks? A payment that more than doubles and a 96K larger balance than you originally borrowed.
A slight flaw is that many OpArms reset when the balance reaches 115% of the original loan amoun,t so many won’t have 5 years of low payments.
I think this is going to surprise many.
Disclaimer, — I might well have an error in these figures but the reality is very close to this.
Way to muddle the discussion. People are walking today…on all loan types. This has nothing whatsoever to do with the Option ARM “nightmare” that everyone is counting on. One is current, the other is forward-looking. If you had a shred of integrity you would acknowledge what I have written, instead of trying to dazzle us with your MBS factoids.
Ok Provider, if we are all wrong on this whole mortgage mess and you are right, then why is the government giving a bailout? We are obviously in more serious trouble than you would like to believe.
Provider I never said all the people will be racking up their cards again I just know that people did so on many loans I did. They called me later to try and refi again. I use words like SOME if you noticed becuase I know all didn’t. If you read what I posted earlier.
stashingmycash Says:
August 4th, 2008 at 9:20 am
Taking an arm was not irresponsible if you could make the the 30 year payment when it adjusts. I did plenty of arms for people and they just needed the two years to get there credit in line. Some did and others didn’t. I loved getting calls from people I did adjustables for consolidation and 18 months later they call back and they have a 700 score up from 580 and they are ready for thier 30 year fixed. It was rare but the plan was sound.
I think you just don’t like my opinions and that is fine, but your kinda nit picking what I say as being the Holy Grail. Most of what I say is my opinion and please anyone reading this DO NOT MAKE YOUR BUYING DECISIONS BASED ON ANYTHING SAY. Do your own research and come up with your own answers. I just like debation what I think is correct.
Provider, not to be pedantic, but I think the folks who put 20%-40% down ARE NOT GETTING FORECLOSED ON!!!
So to talk about the 95% of people who are still paying on their loans is way off the mark. We are not here today because of the 95% who could pay their loans, but because of the 5% who couldn’t.
And, oh, by the way? The ones with the down payments, they didn’t do option ARMs either.
So let’s try not to muddy the water here.
You muddle the discussion, I made a point that option ARMs have double digit delinquency rates, where even ALT-A and jumbo still hasn’t reached double digits yet. My point being, they are defaulting at an extremely high rate and it is a nightmare already. If it were the walk aways you keep trying to justify the delinquency rates, then you are wrong because the rates are increasing month after month. Forward looking they will get worse.
I have plenty of integrity as what I have been posting for the last two years has been right. If anything my foreclosure estimates were not pessimistic enough. It is you that lost all your integrity about five name changes ago. You are freakin nuts, just look at how many posts you have here today alone. Sorry, I post reality, you post fantasy, the market is getting worse, option ARMs are getting worse, prime loans are getting worse, foreclosures continue increasing, and you are stuck on planet 2005.
I should go dig up a year old back and forth between us (when you were ROC) to show readers here you were wrong then and how you are wrong today.
“So to talk about the 95% of people who are still paying on their loans is way off the mark.”
I agree. Then we should also not refer to the total volume in the various reset charts, no? That is a common problem in this here blog….we like to use broad statistics when it supports our wishes (on both sides), and then more narrow ones when they don’t.
Graphrix, can you post the delinquencies you are referring to? I checked with Wachovia, and they are nowhere near what you have said.
Graph missed a couple -
Pebbles.
Ken.
Thoughtful.
Truthiness.
ROC.
Provider.
at least one other.
Whatever. Why is it that you must portray my having a spirited debate as me being “freaking nuts”? What part is nuts? The debate itself? You bears do this constantly. You can’t allow the discussion to veer off into anything that you do not control or approve of. It takes you down several notches.
provider Says: What part is nuts?
YOU are nuts.
Wow, Downey went from $60 a share down to $2 a share in one year, that’s got to hurt!
# provider Says:
- ” If you had a shred of integrity you would acknowledge what I have written, instead of trying to dazzle us with your MBS factoids.”
–
Please, what are you talking about here?
I’m referring to: “…….acknowledge what I have written”
Did we overlook something you wrote?
Hey guys, we need to ease-up on Thoughtfulness or whatever.
She will, true to form, come back with some of her multi-personas agreeing with herself, praising her own comments, and attacking us all.
Yes, back to the matter at hand, how to make money when the govt has now jumped in as the 800 lb gorilla.
…. provider / ROC / thoughtful / truthiness / etc…………..
….. a relic of the housing bubble…………
…… the last piece i must add to my housing bubble museum……..
…… provider, the museum curator will show you to your exhibit…. chop chop….. we don’t have time for your drivel……… please follow the one armed curator to your exhibit……..
…… don’t mind the gas…. it will be painless……we need to remove all the impurities… we must preserve you…. for prosperity…….the formaldehyde aquarium will keep you fresh for centuries to enjoy…… yes, in this grand exhibit…. you will be signing your option ARM for eternity………. you see here… the free money and HELOCs never run out…. you will feel right at home, in fact probably much better off than the reality you would have faced…. in the world post-housing bubble….
…… you shall see i am putting you in a place of great honor…… in between sir David Lereah’s soft landing exhibit…… and Gary Watts bag of horrors exhibit………
………. excellent……… my Great Housing Bubble collection is complete……… muwaha aha haha…….
StashCash says,
“Provider I think you don’t know the mechanics of option arms from the lending side.”
—
You are right on, Stash.
As you also know, the margin differs, depending on the index chosen and the rates at the time the loan is originated.
Rule of thumb: when the index is high, relative to the past or expectations in the future, the margin is generally smaller.
When those same rates on the index drop, the margin raises on new originations. Generally.
The reason being there needs to be some parity between the fully indexed rate (index+margin) and the general market rate for fixed loans.
Screw it, I’m going back to baskets too.
Stash, you repeated everything I already said. The margin is all that counts. Margins on standard ARMs are HIGHER, not LOWER than Option ARM margins. It is YOU who does not understand lending. Thanks.
No loan officer, since the dawn of man, has ever quoted a client a “fully indexed rate”. They quote start rate, MARGIN, periodic caps and lifetime caps.
I guess since the dawn of man no honest LO has ever quoted “fully indexed rate”
Basket weaving here I come!!!!!
OMG, you are so funny. You are arguing….I don’t know what. No one cares about a “fully indexed rate”. You have an index and a margin. Add them together and you are done! The only other factors of relevance are your adjustment and payment caps. I believe your entire point is that brokers sold higher margins. I concede that SOME did. The single most important term a broker could quote would be a “lifetime cap”, not a “fully indexed rate”.
provider Says,
“People are walking today…on all loan types”
It took you 30 posts of bull crap before finally telling the truth.
Even you can’t lie all of the time.
So the mortgage library is wrong?? Yes the index + the margin = fully indexed rate. You still are not understanding. Life time cap is more important than fully indexed rate? What? Some brokers charged higher margins? The margin is where they made their back end points!
Again but slower.
The fully indexed rate = index + margin Good we have established, right….
Now if an LO charges a higher margin they make more $$$…….
The amount that gets added back to principal is the difference between the 1% and the fully indexed rate…..
The fully indexed rate is what the loan payment will be when the loan recasts……..
So if the fully indexed rate is not important??????
How does the borrower know what is being added to the principal of the loan when they make the 1% payment????……………..
How do they know what their payment will be when the loan recasts?………
So just to repeat index + margin = fully indexed rate…………..
There is no argueing……….
Again this is fact……………
Please read very slowly 3 times and let me know if you understand now.
Anyone else here think this is flawed??? I thought my last post was very clear???
That should be “the start rate + margin + lifetime cap are all that are important”.
Should stash seek help too? Since you care?
No I can’t project what it is going to be in 3 years but what ever it is it is still the fully indexed rate. I know it adjusts but it is still called the fully indexed rated , today,in the past and in the future. When the index adjusts there is a new fully indexed rate.
I said that they made money from the margin?? Didn’t I ???
The start rate is the fully indexed rate when you fund the loan (on that day) and it adjusts due to the index but the rate you pay when it recast is the fullly indexed rate. Just that you don’t know what it is going to be when you fund becuase it adjusts but it is the fully indexed rate.
I thought we established that index+margin= fully indexed rate????
So if the index changes the fully indexed rate changes with it, but it is still index+margin=fully indexed rate. Just that the index has changed.
When the loan recasts they look at the fully indexed rate on that day and that is what your payments are based on until the next adjustment period. So the fully indexed rate is very important! So is the life time cap and adjustment period but with out the fully indexed rate for that day how do you know what you are paying?
I don’t think you read anything a posted!
Oh I need help more than anyone here! There is no question about that. :)
“No I can’t project what it is going to be in 3 years but what ever it is it is still the fully indexed rate.”
Breakthrough! Then HOW can it be quoted?
Listen, we are thisclose to saying the same thing. The difference is: I don’t put you down for using your slightly-flawed description, unlike what you have done to me. Goodnight.
Wow! You quate the day you lock the loan as your fully indexed rate and let the borrower know it will adjust.
Sweet dreams!
Whoops quote.
See I need lots of help………..
The first step in ceramics is make sure you get all the air bubble out of the clay………….
Whoops wrong blog…
Provider I never put you down, just corrected you. Big difference.
Holy crap- i picked this blog name a couple of months ago from a funny Stephen Colbert skit. Please do not confuse me as sharing any of the same views as Provider.
Sorry I need to correct myself…
You quote the days rate and let them know it can adjust until you lock it. That is the same thing with 30 year fixed becuase those rates flutuate day by day until you lock.
For home loan financing, figure out how much you can afford. The calculators can help, but it is best to visit a lender to find out for sure.
You corrected me? Hahahahahahahahahahaha!
Clearly, you come from a chop-shop. You make NO sense! You are “quoting” an unlocked initial fully-indexed rate, and somehow you are done? You cover your arse with “it can go up”?
You are so far out in space you are in another solar system. A few astute people here know exactly how much of a jerk you have made of yourself with your arrogance and ignorance. Now I know how NBI felt when you tangled with him. You were equally clueless then.
Please any astute people correct me if I am wrong. NBI I know we differ on what sales should be but even you can see facts.
Again, you are only looking at the small picture (the brief moment in time where you are trying to get the business). When I say “quote”, I mean in-full and accurately. Of course you would disclose the current, floating fully-indexed rate, but it has very little meaning, as it will change next month, even when locked. A good broker would describe the formula itself, index + margin, and proceed to define both. People complain about not understanding these loans for a reason, under my scenario they would be educated, not simply sold. Current “A” mortgage products are running at 2.25% margins, so yes, that is less than 2.75%. However, until August, the world was full of loans with margins that were considerably higher. I have only responded to you because of your astonishing rudeness. Maybe it is you who needs to re-read the entire thread and imagine how you might be coming-off.
Provider says;
“A good broker would describe the formula itself, index + margin, and proceed to define both. ”
Yes the definition of both together is fully indexed rate!
These are your words not mine so in describing what index+margin is and how it works how can you not use the words fully indexed rate?
Your trying to say that 1+2=3 But 3 is not important to the equation?
index+margin=fully indexed rate
Simple!
Come on guys.
People want to know what the interest rate is.
That’s their question, that’s their concern….that’s the number they use for comparison when deciding what loan they want.
The “interest rate” is the fully indexed rate……..
Then, they ask about the payment…..and suddenly the optionArm looks good.
Never had anyone concerned about “margin.”
Ceramics class is too involved….basket weaving is looking better and better:)
Thank you PDU…..
How can anyone say the fully indexed rate is not important?
You call me rude…………..
Provider says:
“You are so far out in space you are in another solar system. A few astute people here know exactly how much of a jerk you have made of yourself with your arrogance and ignorance.”
Um I think you are describing yourself!!!!!!!
No one here has said I was wrong except you. Please anyone speak up if they think I am wrong……
stash,
I think you are wrong. You explaining things in a reasoned fashion with facts is obviously your fault. That in turn leads me to believe you are also arrogant - using logical arguments, who do you think you are?
Thoughtful uses the same bag of tricks every time and it convinces me always - provide opinion, call names, act as a victim, and not answer direct questions. So she certainly has my vote.
Thanks- k.o. I think???? No I get your sarcasm………. :)
I try to present facts and when I can’t, I state that it is just my opinion.
I think she just likes to get a rise out of people so they stoop to her level of name calling, but I like the higher ground.
“A good broker would describe the formula itself, index + margin, and proceed to define both. ”
Hello? Let me try this another way: “proceed to define each”.
“Your trying to say that 1+2=3 But 3 is not important to the equation?”
And you are trying to say that you quote only 3 with the advisory “it may go up”?
“How can anyone say the fully indexed rate is not important?”
Because other than for comparing competitors on day 1, it is NOT! It is a temporary number that is the result of a formula. The number means nothing without the formula.
“That’s their question, that’s their concern….that’s the number they use for comparison when deciding what loan they want.”
Um…they only want to know a rate that is not locked and/or expires in 30 days? That is a little light on information. Don’t we hear day after day how brokers are not doing their jobs when they don’t explain things?
I honestly don’t know why you have taken this on as your crusade, nor do I care. I think this type of sales technique has ruined people. Let’s drop it. You have zero chance of convincing me, as I have zero chance of convincing you. And yes, you were rude, especially when you were patting pdu on the back (against me) in the other thread. Not sure if you saw it, but he acknowledged I was right in my discussion with him. That kinda makes you look especially foolish, in that you were apparently agreeing with him (making you wrong too).
A single, raggedy site on the internet isn’t going to cut it. They are giving generic information on generic ARMs, a one-size-fits-all approach. They said MANY other things on that site, but you are fixated on only one. They said, for instance:
“Loans with an adjustable rate feature will adjust to the fully indexed rate when the fixed period has expired.”
Guess what? Can you grasp the importance of the words “adjustable rate feature”? Your loan is fully adjustable, it is not a “feature” of an otherwise fixed loan. That is for hybrid ARMs. It is intended to advise people that the fixed rate is likely lower than the rate the loan will reset to. And in that case, the fully-indexed rate will be in effect for periods of 6 months or 1 year at a time. That is not the case with a straight ARM where it will adjust monthly. There is nothing wrong with using the term “fully indexed rate”. However, it requires clarification. It cannot be used in a vacuum, which is what you keep implying. It is of little importance by itself.
Here is how Wachovia desribes their ARMs - the words “fully indexed rate” do not appear here:
For example, on a 5/1 LIBOR Adjustable Rate Mortgage, the interest rate and payment are fixed for the first five years of the loan. The interest rate and payment may adjust every twelve months thereafter and may not increase or decrease more than 2.0% at each twelve-month adjustment. The interest rate cannot increase more than 5% over the term of the loan. A 5/1 LIBOR ARM for $200,000 with a 30-year term and an initial interest rate of 6.622% APR, repayment will consist of 60 monthly payments of $1183. If the interest rate were to increase by the maximum five percentage points to 11.622% APR, then the monthly payment would increase from $1183 to a maximum of $1999 in the fifth year. Other rates and terms are available. The terms used in this example are for illustrative purposes only and the actual terms you receive may be different depending on your individual circumstances.
Wachovia doesn’t find it useful or informative to use that term.
Hmmmm…….a “lifetime cap” did make it though:
“The interest rate cannot increase more than 5% over the term of the loan”
And Countrywide. No mention of fully-indexed rate, but lifetime caps and indexes makes the list again.
Basic Adjustable Rate Mortgages (ARMs)
As little as 5% down required on some programs
Adjustment periods each 6 months
Maximum Life caps of 5—6 % on most programs
Periodic Adjustment caps vary from 1—2 %
Choice of Treasury or LIBOR indexes
Assumable (credit qualification required)
Conversion option available on some programs
Owner-occupied, second home and 1-4 unit properties
Loan amounts up to $6 million; greater than $3 million is allowed for the 1mo/6mo LIBOR ARM and the 3/1 and 5/1 Hybrid ARMs
Wells Fargo. They use “index”, “margin” and “cap”, just as I said. They do NOT use the term “fully indexed rate” anwhere in the document.
An adjustable-rate mortgage (ARM) has an interest rate that is fixed for an initial period and then adjusts periodically based on financial market conditions.
During the initial fixed period, an ARM typically has a lower interest rate than a comparable fixed-rate mortgage, so you can save on your monthly payments during the early years of your loan term.
After the initial fixed-rate period, the remainder of the loan term is divided into adjustment periods of five years, one year, or six months, depending on the ARM product you choose. At the end of each adjustment period, the interest rate may change based on the loan’s:
Index: The interest rate on a publicly traded debt security that is used to calculate the interest rate on an ARM. Popular indexes for ARM loans are the one-year U.S. Treasury security and the London Inter-Bank Offered Rate (LIBOR).
Margin: A fixed percentage (usually two to three percent) that is added to the index at each adjustment period to determine the loan’s new rate.
Rate Cap: Typically the maximum amount your interest rate can increase or decrease at each adjustment period and over the life of the loan. This protects you from severe increases in interest rates.
Ditech. Still no “fully indexed rate”, but the “index” makes it.
ditech Adjustable Rate MortgageDitech’s Adjustable Rate Mortgage offers a low rate that is fixed for the first three, five or seven years. You enjoy both the low ARM rates and the security of knowing your monthly payments for the first few years.
Benefits
Get the low rates you thought you had missed Plan for your future with fixed payments for the first three, five or seven years depending on the product Enjoy greater purchasing power with lower monthly payments Details
Our ARM products offer fixed rate periods of three, five or seven years before converting to an adjustable rate mortgage for the remainder of the term After the initial fixed rate period, the rate adjusts once a year based on the current rate index Loan to value (LTV) ratios up to 95%
OCTFCU. LIght on lingo, but the formula is implied. I have yet to see the words “fully indexed rate”.
5/1 Fixed/Adjustable Rate
Our 5/1 fixed/adjustable rate mortgage loan offers a lower starting interest rate than a traditional fixed-rate loan, which can help you qualify for a higher-priced home. The first five years of this loan are at a fixed rate, and then adjusted annually based on the weekly average of the 1-year Constant Maturity Treasury (CMT) index.
Quicken Loans. There’s that lifetime cap…..again. Still no “fully indexed rate”.
How the adjustable-rate mortgage loan works
An ARM is a mortgage with an adjustable rate that is amortized over 30 years.
Your interest rate is fixed for the first 3, 5, or 7 years.
After the initial fixed-rate period, the interest rate could adjust every 12 months depending on the product and the financial markets.
Interest rate adjustments are capped up to 6% above your initial rate over the life of your loan and 2% per adjustment period. Therefore, if your initial interest rate is 4.5%, your rate can never adjust higher than 10.5% and never more than 2% a year.
The Federal Reserve handbook - ARMs section. They use ALL of the terms I used, and no “fully indexed rate”.
What Is an ARM?
An adjustable-rate mortgage differs from a fixed-rate mortgage in many ways. With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an ARM, the interest rate changes periodically, usually in relation to an INDEX, and payments may go up or down accordingly.
Shopping for a mortgage is not as simple as it used to be. To compare two ARMs with each other or to compare an ARM with a fixed-rate mortgage, you need to know about INDEXES, MARGINS, DISCOUNTS, CAPS ON RATES AND PAYMENTS, negative amortization, payment options, and RECASTING (recalculating) your loan. You need to consider the MAXIMUM AMOUNT your monthly payment could increase. Most important, you need to know what might happen to your monthly mortgage payment in relation to your future ability to afford higher payments.
Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages. At first, this makes the ARM easier on your pocketbook than a fixed-rate mortgage for the same loan amount. Moreover, your ARM could be less expensive over a long period than a fixed-rate mortgage–for example, if interest rates remain steady or move lower.
Against these advantages, you have to weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It’s a trade-off–you get a lower initial rate with an ARM in exchange for assuming more risk over the long run.
Your turn. Please, no more “Broker Outpost”.
If you search the internets, one of the first hits on “fully indexed rate” takes you to mtgprofessor.com. Here are the cliff notes:
“To avoid getting trapped into a bad ARM, it is very useful to understand the difference between the interest rate and the fully-indexed rate (FIR).”
So far, so good.
“The FIR is the rate you don’t see. It is never quoted, never shown in the media, and is not a required disclosure. Yet it is the major indicator of what will happen to the rate at the end of the initial rate period.”
Huh? I thought it was always quoted?
“The FIR is usually the best prediction of the rate at the first rate adjustment – which is month 2 on a monthly ARM. If the index does not change between month 1 and month 2, the rate in month 2 will be the FIR.”
Hmmm……going downhill from here. It only helps “predict” the first change…..if rates don’t change.
“If two ARMs use the same index, you only have to compare the margins because the index values will be the same.”
Ut roh…..you gotta know the……margin.
“To make sure two FIRs are comparable, proceed as follows:
1. Ask the loan provider for the margin — in writing. You don’t want any nasty surprises at the closing table.
2. Ask the loan provider to identify the index used from a list that you give him. Copy the list shown at ARM Indexes.
3. Find the most current value of the index yourself. (The web page cited above shows on-line sources for all the indexes listed there.) Just remember that if you are comparing ARMs with different indexes, the period used should be the same. They should both be monthly values for the same month, weekly values for the same week, or daily values for the same day.”
What the?!?!?!?! You have to ask for the index and margin and CALCULATE THE DAMN THING YOURSELF? And then it only, maybe, tells you what the rate maybe, might possibly be next month?
Gosh, I don’t know what I was thinking. It’s critically important.
Wow you really have a lot of spare time……….
The interest rate is the fully indexed rate when the loan is done with it’s initial rate. (teaser rate)
Adjustable rate= index+margin………….. Yes
Fully index rate=index+margin……………..yes
so adjustable rate=fully indexed rate………………..yes
I see adjustable rate all over your examples. It means the same thing!
Like that I can explain it it simple language without 10,000 words.
No lender will put the FIR in there loan disclosures becuase it changes. Like you said it is a day to day thing, but it is important stillthe same.
You did all that work for nothing…..
So sorry!
No, been working all day. Just incredibly tired of you not letting this go and had to stop you……if possible.
You should straighten the Fed out.
Whoops you got me stuttering
Well, smartypants, no one quotes an “adjustable rate” either! Na na na na na na.
Smarty pants?? I like that ……… Brings me back to my child hood…..
I prefer you call me doo doo head…………
That is important information for the borrower to have. If you are choosing between two ARMs that are otherwise the same, you take the one with the lower FIR.
Um, to get this little turdlet of information you have to QC your broker’s numbers by getting the……….index and margin! Oy Vey!
But see the fully indexed rate is important! You just posted that???
Your quote:
“That is important information for the borrower to have. If you are choosing between two ARMs that are otherwise the same, you take the one with the lower FIR. ”
If you choose the loan with the lower FIR isn’t the FIR important?
Your quote not mine!
Now from your quoate above that says:
“The FIR is the rate you don’t see. It is never quoted, never shown in the media, and is not a required disclosure. Yet it is the major indicator of what will happen to the rate at the end of the initial rate period.”
This is a traditional arm not an option arm which we are reffering to.
Of course you can’t quote the fully indexed rate or publish becuase it adjust all the time and on traditional arms it is only used years later to determine the rate you pay after the teaser.
But …………
On option arms you need to quote the fully indexed rate becuase that is the difference between the 1% and that higher rate ( fully indexed rate) to determine how much is added back to your principal.
How do you know how much money is added to the principal?
What is the that higher rate called that they use to calculate what is added back to principal?
That higher rate is the index+margin or in other words the fully indexed rate.
I am adressing your questions from your own quotes. can you answer my questions?
Now all those people you mentioned above sell their loans to fannie mae, but of course the the fully indexed rate is not important. The whole equation is important as you said but don’t say that the fully index rate is not.
Oh god. I didn’t say the term didn’t exist, I said it is next to meaningless, because it requires other terms to accompany it at all times. THAT is why it is barely used, except internally by (mainly) underwriters. It cannot stand on its own, and even when the issue is forced, it requires inspection and confirmation and manipulation. Geez, even Fannie Mae is using it in a much larger context. Fannie Mae does not have it in their Glossery, and neither does Freddie Mac (but they DO have my terms). It is the most unimportant, unuseful and over-discussed term that has ever been uttered. You go right ahead advising your clients with it. The voluminous evidence I have provided is all wrong. You know better than everyone.
Oh god. I didn’t say the term didn’t exist, I said it is next to meaningless, because it requires other terms to accompany it at all times. THAT is why it is barely used, except internally by (mainly) underwriters. It cannot stand on its own, and even when the issue is forced, it requires inspection and confirmation and manipulation. Geez, even Fannie Mae is using it in a much larger context. Fannie Mae does not have it in their Glossery, and neither does Freddie Mac (but they DO have my terms). It is the most unimportant, unuseful and over-discussed term that has ever been uttered. You go right ahead advising your clients with it. The voluminous evidence I have provided is all wrong. You know better than everyone.
See i got you stuttering now. You never answered my question about the option arm.
What is the higher rate called that is used to calculate what is added to principal?
I used your own quotes that say the FIR is important. That is your voluminous evidence and it got turned on you.
Plus how do you know what lingo is used by underwriters? You have never done a loan. Have you?
What is so difficult?
The fully indexed rate is the interest rate.
Of course it’s important.
Thanks- PDU
That is what I have been argueing…… I don’t understand how she can say that?????????? Notice she never answers my questions directly.
What is so difficult?
The fully indexed rate is the interest rate.
Of course it’s important.
It’s valid for one month….if it’s locked. THAT is as important as the outside parameters of a 30 year loan?
Sorry correction:
The borrwer doesn’t need to know how much thier payment is increasing each month.
Not payment but principal
If it is bizzare that I care so much then aren’t you bizare as well.
By the way I am very bizzare……………..
I will keep posting as long as you keep arguing and not answering my questions.