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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 (35965)	7/14/2005 9:11:14 AM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 110194

There are also big penalties for refinancing. i thought it was a "constitutional right" that borrowers can always refinance without penalty--i.e., pay off their existing mortgage early without penalty, even as they take on a new mortgage. are you saying this is not possible for refinancing? clauses to discourage refinancing through penalties make sense, since lenders are giving away the loans. i just did not think they were allowed by law. also, it upsets mish's theory that you can always refinance for free.

To: russwinter who wrote (35965)	7/14/2005 2:36:12 PM
From: TimbaBear	Read Replies (2) \| Respond to of 110194

<1.25% interest for 5 years> Are you sure you guys aren't talking about a negative amortization situation here? Sounds to me like the borrower only has to pay the interest at the monthly level of payment based on 1.25% but the interest charged on the loan is higher than that, with the difference being added to principal (thus negative am). I didn't read the NYT article, so I'm guessing here based on extensive previous mortgage background. I won't register for the NYT site due to personal quirkiness. Timba

To: russwinter who wrote (35965)	7/17/2005 2:13:05 AM
From: Taikun	Read Replies (1) \| Respond to of 110194

It is interesting how these toxic mortgages pose risk, on top of ARMs. I have an ARM but for the life of the mortgage it is capped at 10.75% maximum rate for the 30yr term. Now my brother in Vancouver, Canada got a different deal. (Robert Shiller, the Yale Economist who follows real estate, says Vancouver is the biggest housing bubble in N. America) faced these terms. One thing this does is illustrate how FNM seems to have made housing more accessible for Americans, but on the other hand, despite these higher rates Canadian housing prices have appreciated more than many parts of the US. (remember the Canadian overnight rate is approx 75bp, 2.5%, lower than the US) From what he told me, confirmed by my Canadian friends: 1. Most mortgages 25 year term, although 30yr terms are available 2. The absolute LONGEST term you can lock your rate is 10yrs, after that no limit to the rate you get. Typical 10 yr rates are around 7% right now fixed for 10yrs. In the US a 30yr term 10yr fixed rate has a mortgage rate of around 5.3-6.3% 3. These are closed mortgages meaning NO PREPAYMENTS (or if prepayments are available, above an occasional extra payment each year, there is a penalty as you 'deprive' the bank of interest income) 4. Open mortgages, called open term, allow prepayments similar to the US (ie without penalty). 6months is 6.6-7%, 1 yr is 6.6-7.1%. There seems to be huge profits in here for the banks. 5. Despite the lower overnight rates, Canadian ARMs have almost the same rates as the US. 4.45% for a 5yr.(US about 4.7%) 6. Once the ARM opens, in 1-10 yrs, there is NO CAP on how high the rate can go. canadamortgage.com 7. Mortgage interest is not tax-deductible. Amazingly, unlike the US, where some economists are sounding alarms over proliferation of ARMs, Canadian mortgages have always been ARMs. The Canadian market, combining these mortgage terms with what Shiller said, has even more risk built into it. I remember reading a Wharton study on Hong Kong real estate that found housing booms quite uncorrelated to the Hong Kong stock market, for example. One of their conclusions was that investor psychology drove bubbles. Looking at Canadian mortgage interest rates, you would have thought that higher rates might have been an impediment to the formation of a bubble. It appears to have not worked this way. D