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(English) The Long “Option ARMs” of the Loan

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3 comentarios
  1. Michael Mekler
    Michael Mekler Dice:

    Steve,
    I love your post. The subject of the option arm is one that has been beaten lately almost daily. The statement above:
    “Some 88 percent of Option ARMs originated between 2004 and 2007 are going to adjust higher between now and 2012. Those option ARM borrowers could see their housing bills go up as much as 63 percent, according to Fitch ratings” Is not entirely accurate. As someone that lives in the center of the option arms, San Diego, we know that the recast of these loans will happen when 1 of the first 2 scenarios occur:
    1) The initial 5 years have gone by
    2) The new loan balance has reached 115% of the original loan amount

    If we do the math on a $400,000 loan, the recasting of the majority of these loans has already happened because they have reached the 115% just after 28 months of making the minimum payment. The higher the loan amount the shorter the recast period. Since the last of these loans were originated in late 2006 the above graph, in my opinion, is a non-issue.
    In addition, Bank of the West(World Savings), Downey Savings, Indimac and Countrywide(Bank of America now) gave huge incentives to the lending community to refinance these loans.

    Responder
    • Steve Harney
      Steve Harney Dice:

      Michael,
      Great points. I understand what you are saying. In this blog, I speak on what data is being reported so people can more easily understand the housing market at the current time. I used a recently released Amherst Securities graph which many have used to illustrate the points of my blog. Do you have any data (reports, graphs, news articles) quantifying the number of mortgages that have already been recast or refinanced? I would love for you to share that information with the KCM community so we can talk more intelligently about the subject.

      Responder

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