A lot of the debt, e.g. the 3 yr hybrids, would not come due, just that the interest and payments would be reset.>
Just playing with the numbers and total true current interest rates, a case can be made that these hybrid loans will regular amortize well before three years. For instance the one year Libor this morning is 4.23%. Just taking the most generous margin of 2.25% for a prime borrower, the interest difference between 1% and 6.5% on a $500k mortgage is $27,500 a year. These loans have clauses that require reg amortization at 110, 115, and 120% of the initial loan amount. The standard one CFC promotes is 115. Second point is that the margin over the index is often higher than the 2.25% in my example, plus now they are sucking people into this delayed detenation MTA index and nailing them with higher margins. I'd like to hear some discussion by people familiar with the mortgage business about margins right now on these pay options loans. :
Message 21569358
At any rate, assuming rates stay right here and don't go higher, and using my conservative margin, the reg amort trigger in my example above will be hit at 2 years, 9 months on 115s, and 1 year and ten months on the 110s. Since a trillion and a half of these are one the books dating back to 2003,
idorfman.com
the payment shock reg amort triggers will be hitting continually going forward, and much sooner than is supposed. |
