1.

frank
April 15th, 2008 at 1:33 pm

Nick,
Warning, the following is very nitpicky.
Not all ARM loans were made to subprime borrowers and by extension, not ARM loans are risky.
My current mortgage is a prime 5-year ARM with a rate below 5%. My ARM is indexed off the 12 month CMT with a margin of 275 bps. So if the CMT is at 1%, my mortgage rate when it resets will be 3.75% (it starts in 2.5 years). Moreover, I will reset on a yearly basis.

A subprime ARM mortgage starts off at more like 7.5-8.5% and is indexed off LIBOR (as you mentioned before). However, their margin is more like 6%. So with LIBOR at 2.709 that means that reset at 8.709% which may be higher or lower depending, as you said, on when they received their mortgage. However, they will most likely reset exevy six months. So depending on what LIBOR does in 6 months, those borrowers will be faced with a new payment (higher or lower).

Notice that your 6% fixed rate is STILL lower than a subprime borrower who took out an ARM loan even though they might be resetting lower now.

Now, if my mortgage was resetting today then yes, I would be getting a slightly lower interest rate than now. My wife and I were comfortable taking on that risk and we were very much aware that our mortgage could be higher or lower. We did it in a relatively responsible manner.

That’s my nitpick.

2.

Nick
April 15th, 2008 at 6:48 pm

Thanks for the nitpick, Frank. And you’re absolutely right about ARMs not always being risky. Plenty of people could afford theirs even if they adjusted up 1% every year until they hit their caps.

That said, I do know a few people who will suddenly join us at restaurants and other outings a lot less frequently in the future if their rates really did start going up 1% a year for the next five years.

3.

Kyle
April 16th, 2008 at 10:01 am

I got a 30 year fixed 1st and a 5 year ARM 2nd, but I’ll have the 2nd paid off in full before the rate resets. Sure I could have just put 20% down to begin with but I like to live dangerously.

4.

Obbop
April 16th, 2008 at 10:06 pm

Silly me, what with is obviously a disgusting un-American anti-capitalist morality.

For items needed for basic survival: food, shelter, medical care (not ALL types of medical care… the life-saving type) etc. I bemoan the profit-motive being involved.. to an extent.

Yes, money is used to assist in allocating scarce resources….. and with so many humans infesting the planet all resources are scarce to some extent, more-so for some, not-as-much for others.

I do not propose that all home buyers have access to mini-mansions.

I just wish that profit from the “basics” was limited.

Sure, those building the house, those providing the materials…on and on… deserve to earn the fruit of their labors.

Perhaps it is the interest on loans that multiplies the price of shelter many times the actual cost that bothers me.

If the atmosphere could be metered and taxed I truly believe there are those who could do that if possible and if people died due to inadequate funds, the Rush Limbaughs of the world would rationalize how the dead were at fault.

I can envision a USA where the working poor could actually afford a basic house… nothing too big or fancy but providing the shelter that survival requires.

Wishful thinking, I know, but I tire of a small minority, an elite class, living so very very well by skimming off the profits of the labors of so many people.

If I had a BIG foot I would stomp upon the socio-economic pyramid and condense it a little. Not a lot. I believe in reward for personal initiative but as a former worker alongside the migrant agricultural workers, many who eked out a living in abject poverty but whose hard labors allowed the elites to live their lofty life style (as well as every other American who ate store-bought food) I believe that morality and reward for honest work required by a country/society to even exist should be adjusted just enough so the entire “team” is rewarded.

Currently, too many parasites are skimming off the wealth.

Sometimes, I wish the agricultural workers and truck drivers would just go on strike for a year.

Then the elites would understand how vital the commoners, the working poor are to keep the country going.

But, the elites have enacted immense bureaucracies and propaganda machines to maintain the status quo that benefits them so very well.

I believe that any group, workers or otherwise, who truly threatened the elite’s status quo, could be subject to terrible punishment, up to and including death via the jack-booted thugs.

Sigh…………….

Sometimes I just want to abandon the creeping meatball but nature will take care of that in time. And with 5 decades under the belt that time is not that far away.

I still can see in my mind those 8-year-old kids and old ladies laboring in the fields, under a sweltering sun, not earning any overtime pay until more than 60 hours were worked in one week… then I hear the apologists, the Rush Limbaugh-type folks heaping ridicule on those unworthy of the income the “better class” deserves and earns….

And my anger grows a wee bit more.

5.

Mortgage Advisors
September 4th, 2008 at 5:45 am

Wow I did not know that ARM resets would work like this, we dont have them in the UK At least customer A got the hot wife.

6.

private landlord properties
September 23rd, 2008 at 2:54 am

Great info! Thanks! The sketches are great as usual!