Wednesday, August 22, 2007

Lose an arm and a leg:Get an option arm today!

I have long hated this mortgage product. I am a big proponent of getting an old fashioned fixed rate. I completely understand the purpose of this loan structure, but in no way did the 12% of people that did them last year really understand the product. We usually see people get the picture about a year in when the balance has skyrocketed. Unfortunately, the NEGAM is the payment they could afford not the interest only. In addition, with the financial engineering in these products people buy the idea of the NEGAM payment and don't notice the high note rate which is the real interest rate that the borrower is charged. This product is being eliminated at lenders/banks daily. The real concern for people with these is that they get out from under them and into a safer loan product. Cheers and don't let the video spoil your dinner. From our friends at:


Anonymous said...

Very simplistic representation of a very complicated mortgage product. I notice it "assumed" several moronic scare devices designed to "sell" it's apparent agenda of vilifying an otherwise valid loan product: First, it assumed a 7% average rate throughout the term. Second, was the example of a decline in home value that lasted some 15 years (show me where that has ever happened ANYWHERE in the country) which more importantly also highlighted that it assumed a 1-loan 100% Loan to value (LTV) which was IMPOSSIBLE under Option ARM guidelines ANYWHERE and has never in fact existed! Third, and the biggest assumption of all (and greatest fallacy in this whole county when it comes to housing and mortgage discussions) is that it assumed the average person actually LIVING in the same home WITH the same mortgage for 30 years...has anyone done this since the 1970's? How many people do YOU know that own the same house with the SAME mortgage for that long? My career in this mortgage field has been for 8 years that time, I have seen EXACTLY seven (7) mortgages from the 1980's still being paid on...and those homeowners were doing what? RE-FINANCING!!! Even those mortgages didn't make it to the finish line.

What I have learned in this business is this ABSOLUTE TRUTH: There are NO "Bad" loans! There are loans USED "badly"! And "Sold" badly by the unscrupulous. Sold badly certainly by greedy brokers and LO's that look at the movie "Boiler Room" as an ideal rather than as a cautionary tale, but USED badly mostly by greedy HOMEOWNERS who wanted to fund their "Champagne lifestyles" on their "Mickey's Beer" budgets! I got a buddy of mine an option ARM on his home 2 years ago and he LOVES it since the money he WOULD be paying to the bank on his home (with $400k in 2005 equity) is going instead into his retirement and investments such as oil futures (where he made 22% last year). Think he is complaining about THAT??? Nada! He has enough cash to buy foreclosure properties since he didn't let equity sit and now DROP with the market.

Question: Which of these is more likely to NOT go into foreclosure these days? Example: 2 homes sold for $500,000 in 2005 in Riverside going for $400,000: The buyer who went 90% LTV with an Option ARM and 2nd who's TOTAL monthly payment is less than $2,000 or the buyer with the traditional 30-year fixed and 2nd at 90% LTV with a total monthly payment of $3,500? Remember, BOTH are "underwater"??? What do you think? The guy who is paying MORE each month or the guy who is paying essentially a rent payment?

It's the simps and suckers who THOUGHT they were getting a "1% 30 year fixed loan" (how many times did I argue with people who ASSURED me that was what they had!) that are getting screwed with this loan and well, buyer beware! There truly IS "one born every minute" and people's own ignorance and greed got them into trouble if they bought that!

Video was a simplistic example. A scare tactic for the "sheeple". Doesn't do anyone any favors to present it IMO. Only makes people more ignorant by presenting an otherwise good mortgage in a bad light.

Baton Rouge Real Estate said...

Its crazy now to get a lender to give you the funds to purchase a home. But on the other hand if they would not have given everyone and there grandmother a loan with sub prime lending we may not have a huge issue like we have now.