Sunday, June 8, 2008

You think it's bad now


Credit Suisse just released a new updated chart for Option ARM type mortgages. The old chart was out of date because most of the people that have Option ARMs are only paying the minimum amount. By doing this they move up the date at which the rate resets. Originally most these loans were to reset between 2010 and 2012. But with people making the minimum payments that reset date is moving up as they are hitting the loan cap. As you can see the peak resets have moved up a year or two

If you don't know what an option ARM is you're not alone. An Option ARM (adjustable rate mortgage) is a mortgage that give you the option of paying several different amounts. You can pay the full amount of your interest plus some principal. Option 2 is usually to pay only the interest. Or option3, the one that over 80% of the people with these loans choose is to pay a minimum amount that is less than even just the interest owed. By choosing that last option, the lender then tacks on that shortage onto the balance of the loan. So the loan balance goes up each month. Most of the Option ARMs have a maximum amount that the loan can rise. Once the balance hits that amount (it can be anywhere from 110% to 125% of the original loan). then the loan resets to a regular ARM and you must pay the full amount of interest and principal. So a lot of these payments are set to go from something like $2000 a month to $4500 a month.

Option ARMs were very popular especially here in the IE, in fact they were the most common loan in 2005-2007. Most of these loans were No-Doc (liar loans) and they allowed people to buy homes that were far more that they could afford. Of course all these people are paying the minimum amount and have zero chance of affording the full payment. Once they hit the loan cap and it resets the chances of a foreclosure are close to 100%.

Another chart showing the old reset schedule

4 comments:

realtardhater said...

I moved to the Inland Empire, Rancho Cucamonga in 2005. My wife and I started looking for houses and I thought a lot of people made a lot of money here. Well thats not the case. After some research I found out there are a lot of idiots here instead!
You are correct with the fact that these Arms have just started to reset and it will get pretty ugly around here. A realtard about 1.5 years ago told me, quote: Why don't you just get off your high horse and buy a house! Cause, prices will never come down in Rancho Cucamonga! Well I still have that e-mail! Maybe I should send it back to her.

ButterMonkey said...

I had a loan person tell me, just yesterday, "Things are really starting to turn around right now!" I sat there wondering if she had seen the Credit Suisse chart.

There are still people out there paying way too much for houses. $450,000 sure sounds good when it used to be $700,000. The problem is, most people in the IE don't make enough to pay the mortgage on a $450k home, so my question will continues to be who the hell are the people picking up these overpriced repo homes?

bigdog76 said...

I just went looking at some house in North Corona yesterday with my agent (close friend of mine). We were going to check out a house that was $318,000 thinking something must be wrong with it.

Come to find out there was no key in the lock box and they the listing agent told us they have over 37 OFFERS on it and they are not taking no more. The house was real nice from what I can see from the window.
People are starting to buy. I wish they would not and let the prices fall more they are just make it go up when that many people are bidding on homes its crazy!

We look at about 8 house all were in North Corona Eastvale and they were nice. Some were way to close to the cow fields which I will not buy there. But if you get a safe distance away its not to bad can even really smell it I was surprised. I though it would be worse.

I did notice that every house we looked at there was a agent or two with there client either ahead of us or right on are trail so there is new interest.

I bugs me because I dont need the bidding war on a house I really might go for in the next 6 months or so.

Terry said...

I know you're going to think I'm insane, but the more I read, the more the 2012 date keeps popping up. It's all over Kevin Phillips's new book, "Bad Money." Anyway, the reason this keeps sticking in my head is because of the Mayan prediction of the end of the world in December 2012. I don't believe that kind of stuff, but this is just too freaky.