HMMM

Even if the rate does drop that does not mean that the mortgage companies will lower their rates on the adjustables or even keep them the same.

If you look at the arm's that are in trouble right now you will see that all of them are adjusted WAY above the current baseline. The mortgage companies raised the rates just because they could.

And we all know that just because you could does not mean you should.

I am still on the thought that the mortgage companies have done this to themselves and I really hope they have to pay the fiddler.

As for Merrill, they are big enough they can keep rates down, even if the Fed bumps them up, to protect their own investments from becoming non performing assets. Countrywide and BofA do not seem to be smart enough to follow.

It is all about GREED!

If the goal is to keep people in their purchased houses, cant the ARM loan rates be capped at, say, 7% ?

BTW, the fixed-rate loans for the past few years were down to about 5%...what were the lowest ARM rates starting at?

Some were as low as .5% for the first 30 days. Most started out at 1.5% or just under 2.0%.

The cap could be done but I don't think it is needed. If the mortgage companies would not raise the rates "just because they can" there would not be a problem. The rates are adjustable, yes, but that does not mean it is a mandatory rate hike. It could just stay the same rate as they have right now and the payments would not change. It is the greed of the mortgage companies that are causing this mess. IMHO.

OK, so you give some examples of the introductory rates. I assume only an idiot would assume that they would pay the introductory rate indefinitely. So where are the adjustable rates moving too? Maybe something reasonable like 5, 6 or 7 percent? Or is it something outrageous like 10 or 15 percent?

You say the banks are greedy, but they need to make a profit, what does the bank pay to borrow money? Won't they be losing money if they don't bump the rate from the introductory rate to something higher than they can borrow for? Is the answer for the greedy bank to leave the rate at the introductory rate forever and lose money?

Aren't some of those low introductory rates based on the developer buying down the rate? So is it the mortgage companies and/or the developers fault?

What does that federally-mandated lending statement look like for one of these .5% interest for 30 days loans look like?

If it's fixed for 30 days only and then rises every 30 days afterwards, that's just like a credit card...how can that be called "fixed"? False advertising?

What EXACTLY are the terms of these loans? Most bumps in interest rates are capped at a certain percentage per period over last period's rates and as they relate to the Prime rate.

I've seen a lot of instances where people were buying 2nd, 3rd and xxth homes and claiming they were principle residences on their loan apps. Should flippers who got caught with a mess of dough on their faces be bailed out?

The only reason the stock market has been marching upward is that all the money that was being bet on housing has returned to stocks.

Bail out housing, why not bail out everyone who lost money on stocks during the last turndown?

On a side note: Which Corner Bank do I need to visit to make my deposit?

JT
I do not think this is at all about CRA. These are loans above the median housing cost. CRA does not support large loans to individuals for their own single family residences. CRA does exist and yes it can be a nightmare for banks if it is not managed properly. As a banker myself CRA can mean gifts as well, community support or many hundreds of other things. I is not necessarily ONLY for low end housing.

1nt Cobra
Yes some of them actually thought the rates would stay low for many years as the LIBOR rate had never been high and is still not high to this very day.

Some rate increases that are coming due will put mortgages over the 18% APR. These loans (some of them) are based n LIBOR rates and those rates are still very competitive to this day. The mortgage companies are raising the rates because the contracts say they can not because the index has gone up. There is a major difference. As for them loosing money the do not loose money because the notes are based on decreasing term. Meaning you pay the interest first proportionatly and the the principle majority is aid at the end. The average time an American spends in his home is only seven years. So very little principle is paid and the banks collect all the interest..up front.

I hope that explains it. I may have to re read this and try again.

sizzler
I'll be right back

Well The seller cannot pay any of the buyers down payment. I have sen instances wher ethe developer piad some point sand he now has a felony aginst him. (True story) So the idea that the developer bought these down to get a better rate is not the case. The homeowner could hower do so. BUT in the past few years you have not had to buy them down especially on a ARM. They were low to begine with and the buydown was not needed. hard to buy down a .5% ARP.

The loan terms are adjustable. Meaning the mortgage companies may adjust them "at will" givien the adjustment dates on the contracts. Every month, quarter semi annually or annually. It was whatever they cold dream up.

That is what is the kicker here there are so many different types of loans that one solution will not fit all problems as it so seldom does.

You are right that there have of late been a GIANT surge in bank construction on every corner. They all have money to loan right now to. The problem is they have raised the qualifications and the terms to a point that with the problems of the last few years noy many can qualify for a new loan. Whew...

The banks and mortgage companies could if they wanted curtial this problem and save themselves in the process. However history tells us that will not happen.

NO the flippers and multi home buyers should not be bailed out.

"Live buy the flip; die by the flip"

Just doing a quick search on LIBOR ARMs, the first explanation I saw describes the rate as being LIBOR plus a spread.

That is quite similar to a loan based on the prime rate here. I have seen offers for Prime, Prime - 1%, Prime + 0.5%, etc.

So you are telling me that someone might have gotten an ARM for LIBOR + 15% and did not know what the spread meant and what it would do after the introductory rate ended?

I probably should have written that the rate on an ARM could not go higher than the fixed rate at the current time. Would this scenario make more sense?

What this thread shows me - some people are stupid and should not be allowed to buy chit on credit. They deserve getting whacked around a bit.

1ntCobra

Yes exactly. many did not understand that the rates would or could be 18%. They were sold these mortgages on the prim-is that the LIBOR rate has never been high so it never would be high.

The rate started based on LIBOR then reverted to greed. LIBOR rates are still low today. The loan doc was written so that the mortgage companies could raise rates at given intervals based on nothing other than a 3% maximum rate jump per adjustment period.

So Start at 1.5% +3%+3%+3% =10.5% the rates are due to adjust again twice more this year. So this causes the mortgage payment to double, triple or quadruple or worse.

I would not say didn't know what would happen. i would say did not understand what would happen.

Countrywide's loan docs are clearly written that by signing the document you waive your right to notice of foreclosure. So most of these people have no idea their loan is in foreclosure until someone comes and tell them to move out of their home.

I personally know someone this has happened to.

Sharroll

Maybe but the rates CAN go higher than the current fixed rates. I know of mortgages that are today at 15%. These were good loans when they started out. The owners cannot refi now because the home will not appraise for what is owed against it. In many cases even after the initial 20% down payment when the home was purchased.

GS

So your telling me you have never been misled in any business transaction you have ever been involved in? You have never been lied to? You have never been given wrong information under false pretenses?

Yes I do believe that people should have read the contracts and understood them. But if you refi'd during that period you know the process was well honed. Everyone that buys a home is not a real estate attorney. Some simply do not understand anything except the payment is $___________. They do not know what it will be next month, but they are not told that.

WOW. Congratulations. I am not trying to be a smarta$$ here OK. I believe these people were out right lied to and cheated. The mortgage brokers had their plan well rehearsed and polished. They had to or they would not been paid and they themselves could not have afforded the monster homes they were living in.

I personally refi'd a home during this period. When I got to the settlement table I read the doc and found out for the first time it was a LIBOR based ARM. Needless to say we walked away. We were not told the loan type. It was not disclosed in our good faith estimate or in anything we had from the mortgage broker. It was a complete and total surprise. We simply transferred the doc to another lender and went on with business. Most people would not have caught that as most people sadly do not read the docs word for word.

Yes to most of what you ask. However the problem, as I see it, people wanting far more than they could or should pay for. Ego economics if you will.

Lied to - conspiracy - how about people not reading what they were signing. To busy "movin on up" to pay attention. Sorry but I have little sympathy for people that knew they couldn't buy a house the old way so they did it the new way.

I did refi my house - moving from a pretty decent 30 year adjustable to a 15 year fixed - took no equity out to buy plasma tv's or Cobra's. And no I'm not a lawyer, financial guru, banker, real estate agent just a simple old contractor - but I did stay in a Holiday Inn once. :)

I have a buddy that sells cars - his first question to the customer - How much do you want your payment to be? Then the bleeding starts - damn fools have Ugo money and BMW taste.

OK, But what about the first time home buyers that were looking to people they thought at the time were looking out for their best interest?

You and I know better but all to often the first time home buyer does not have the luxury of knowledge oe experiance. Most do not know or were not told they should seek council.

Mind you I am not defending some or even most of the people this is happening to. A lot of the people that are going to get the rate increase are flippers that didn't know when to say when. GREED as I mentioned before. I am not defending them at all. I do feel compassion for the people that were blindsided and robbed at the settlement table.

Does that mean I think those people need to be bailed out? NO, I do not. WHY? Because how can you tell who is who, in the millions of people in that predicament. You can't.

As my Signature line says today and has said the same thing for seven years now.

If you can stand the tuition; You learn more from mistakes than successes.

NO BAILOUTS!

For those interested, the pending ARM re-sets appear to be only the first wave of the mortgage loan fiasco.

http://seekingalpha.com/article/4664...-mortgage-bomb

This article "Negative Amortization and Interest Only: The Next Mortgage Bomb" reviews the huge percentage of loans with negative amortization and interest only payments. Let's say house prices go down (they have) and stay down, what will a huge percentage of people in the negative amortization and interest only groups do? Well, walk away from their mortgage, especially if they cannot live in the house long-term.

Last paragraph:

"Finally, in case anyone asks: “Why didn’t anyone see this coming?” The answer is pretty simple: these trends aren’t new, they’ve been developing for a couple of years now, Wall St. and the lenders saw it coming, they just chose to pretend it didn’t exist and hope that “somehow” the profits would keep rolling in. It kind of makes you wish you could rank hedge fund managers, lenders, money managers, financial executives, et al, by their propensity to wear rose colored glasses and ignore pink Elephants."

Great article.

I believe they did see it coming and pushed harder for the final victims before the public took notice.

There sure are a lot of mortgage brokers scrambling right now.

Karma my friend.