Comments on: Is Your ARM Resetting?

By: Bao

Bao — Wed, 28 Nov 2007 03:40:06 +0000

I can’t believe that some people actually don’t know if they have an ARM or fixed rate mortgage. These people deserve to go through foreclosure.

By: Cleveland Real Estate

Cleveland Real Estate — Wed, 28 Nov 2007 00:45:27 +0000

The beginning of the year a 500 credit score, no money down, no closing costs to pay, little to no reserve or money in the bank, and on top of that a purchase at 100%+ of its actual market value.

ARM time… No equity, no money = no way to refinance. The costs can’t even be rolled in. It’s a lose, lose. It’s sad. I’m a REALTOR and I feel real estate agents, appraisers and lenders are somewhat to blame. Ultimately it’s the borrower and the one signing the documents but as professionals, we need to be more of a consumer advocate and less of a paycheck collector. It’s a sad situation for many families. I get calls frequently from homeowners asking if they can sell. Telling me their situations and begging for help. There’s nothing they can do.

http://www.youshouldown.com/blog.asp

By: Ann

Ann — Tue, 27 Nov 2007 02:49:48 +0000

I think that for many seeing what is happening today..those that were fortunate to get the fixed payment will do what their grandparents and parents did..they will stay put..you will find that the rate for the average homeowner to stay in their home will increase significantly..

For those that fear the unknown of moving around for employment..they will be the renters..those that will rent in a property for 2 years or more..not willing to commit to the chance of being “stuck” in or with a property…until the market becomes stable again…

By: John Marks

John Marks — Mon, 26 Nov 2007 23:14:42 +0000

These extreme stories of broker and personal greed may be true, I haven’t personally seen the flagrant abuses people have written about on this site but I wouldn’t put it past human nature. I think from my stand point this all started to unravel when FICO scores started to become the predictor of mortgage performance about ten years ago. Faster is not always better and at some point you cannot beat last years numbers without cutting corners at the very least. Add to that investors clamoring to invest in your product right now and you know what they say about computers, garbage in garbage out.

John Marks

By: Fielding Mellish

Fielding Mellish — Mon, 26 Nov 2007 07:17:42 +0000

The main difference between the current “subprime” defaults and the pending ALt A & Option ARM defaults is borrower motivation (or lack of it). In my area (Upper Midwest), it appears that upwards of half of the current foreclosures are fraud-related. I’m not talking merely about stated-income fraud by bona fide owner-occupants (though there is that). I’m talking about fraud where the borrower had no intention whatsoever of making even payment #1. You know, situations where a house that sold for $200k last year sold for $300k early this year. Buyer, seller, agents, appraiser & loan officer colluded to jack up the price & steal $100k from the new servicing lender – splitting the proceeds. As soon as the lending industry created 100% reduced doc financing, suddenly people started bird-dogging prospective property buyers in bars: “What’s that I heard? You have a 661 credit score? Have I got a deal for you! Sign a few papers & we’ll give you $10 grand per property!”

In contrast, most Option ARM borrowers really want to keep their houses. They have kids in school and the whole nine yards. They were just dumb as rocks. They believed the billboards: “$300,000 loan for under $800/month!” Being innumerate, they did 80% c/o financing based upon a generous (bogus) appraisal. Now their loan balance has gone up while their house value has gone down. They’re upside-down (especialy if they did a second mortgage too), and there is no way out.

The current wave of forclosure borrowers at least had the common decency to collapse quickly – without even the pretense of having any intent to pay the loan back. The Option ARM bororwers are more likely to drag out the process with promises that they’ll soon get “back on track”, etc.

Nobody deserves a bail-out – banks or borrowers. Let the chips fall where they may.

By: Morgan

Morgan — Mon, 26 Nov 2007 01:58:26 +0000

Sniglet – That is a great point. There are so many variables that have unknown consequences. I think that conservative folks would be more inclined to ‘ride it out’ even if there is no way to actually do that. They probably are more worried about their credit and figure they can make up the losses later on. It’s not going to happen but that is probably part of the thought process. I think the bank would bet that they stay opposed to facing foreclosure and they won’t be forgiving any debt any time soon.

By: Morgan

Morgan — Mon, 26 Nov 2007 01:56:05 +0000

Matt – I agree, this is not a subprime only problem. It’s a huge point that the mainstream media seems to be missing – BIG TIME.

By: Morgan

Morgan — Mon, 26 Nov 2007 01:55:28 +0000

Russ –

I agree with you 100% – it is time for this ponzi scheme to unwind. And yeah – it sucks to lose $125,000, but I won’t cry about it. I know that you can’t protect equity with another loan, but you can open up access to credit for use in an emergency if you need it.

I always appreciate your insight and comments – thanks for posting.
Morgan

By: MattBW

MattBW — Mon, 26 Nov 2007 00:07:08 +0000

For so long the media has reported this as a “Subprime Problem”, when the facts are that Subprime was just the tip of the mighty iceberg.

The next shoe to drop are on the Alt-A ARMs, and trust me, they will make us earn for the days where the market was just a “Subprime problem”

Head for the freaking hills, it is going to get sooooooo ugly.

By: Mark

Mark — Sun, 25 Nov 2007 19:49:56 +0000

I wish I had the link to this, but I don’t. I do remember it quite well, there was an auction in Florida where homes were going for 50% of what was owed (if they went at all). One I clearly recall was purchased for $1.25 mil one year ago, and the bidding went down to $400k before the bank decided to just take it back. No bidders at $400k, ouch!

As for the Option-ARM reset wave out in 2010, I see that as just lengthening the duration of the RE bust, it won’t make it more severe. Remember, this group is (generally) better able to weather their reset than the current group, and many of them will refi into a fixed rate before hitting their first reset (a co-worker of mine is doing just that).