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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (24900)	1/18/2005 10:59:08 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Russ... Here is my question repeated with a reply from Dave Donhoff National Mortgage Broker/Banker ============================================================= How is that typical 1-yr ARM structured? Assuming thay had a 1 yr arm tied to 1 yr libor (that at the end of 1 yr stayed based on 1 yr libor) they took a hit but I doubt your 2.75% Is correct. If it went from 1 yr libor to 3 yr libor (good god were they F*d and are really going to be hurting). If it went from 1yr libor to one month floating at the end of that year, then things are not very bleak at all unless more hikes keep pouring on. Thus it might be important to know just what the industry standard arms look like and are based on, after the lockup period expires. I have no ideas here. I will see if I can find out. Reply from Dave: Well... currently (and for the last few years, or so) the 1 year ARM has been a bit more rare... The standards have been; 1 month LIBOR ARM (tied to 1 month LIBOR index,) 6 month LIBOR ARM (tied to 6 month LIBOR index,) 3 year ARM 5 year ARM 7 year ARM 10 year ARM (all tied to 1 month, 6 month, or 1 year LIBOR, or 1 yr treasuries,) 1 month & 6 month ARMs have margins from 1.25% to 3.25%, depending on the investor, and how they are "sold." For all other hybrid ARMs, LIBOR ARMs typically have a 2.25% margin, Treasury ARMs typically have a 2.75% margin. Rate adjustment caps vary as well... coming in flavors of; None (investor's fave of course,) 1-1-6 (on the 1 month & 6 month LIBOR ARMs,) 2-2-5 (on the hybrids,) 5-2-5 (on the hybrids,) 2-2-6 (on the hybrids,) 6-2-6 (on the hybrids.) I've run an "armageddon analysis" with the worst-case adjustments taking place, and typically the conforming & standard Jumbo 5 year ARMs outprotect the 30 FRM for 9+ years, interest-cost-wise, in the worst-case scenario. The spreads between the 5 yr & 30 FRM have held steady in this respect for the last 7 years or so that I've been watching & figuring. What they'll do next year, I have no idea, of course. The 7 year ARM, interestingly enough, has approximately the identical curve crossover as the 5 year ARM... 9+ years... with the remaining rate curve being virtually identical... so the 2 additional years of "safety" are pure emotional only, not financial. Personally, I'm in the 6 month LIBOR on 3 of my properties, and sleep like a baby (crying & fussy all the time... LOL!) Seriously... as you know... I think we're seeing the printing or approaching of a near-term topping in rates for a good while yet. Cheers, Dave Donhoff National Mortgage Broker/Banker