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

To: Ramsey Su who wrote (37387)	7/31/2005 2:04:05 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

The shock is going to be the reset date, potentially 5 yrs from origination.> Maybe bankruptcyenabler can chime in on language and definitions, but my understanding is that the vast majority of ARMs and IOs, have 2% annual payment caps, that kick in after only a year of teaser rate. So if one took a 3.5% prime ARMs teaser in July, 2004, it's being "reset" and "capped" to 5.5% today. Since the real rate is now pushing 6.40% (1 Libor of 4.15% plus 2.25 margin= 6.40%), libor-loans.com then the lender gets to eat that one, at least until July, 2006, then the borrower can have his shot at eating it. The "reset" term you use is the the term I use for this rate change, so want to make sure you (or I?) are using correct terminology. The reversion to regular amortization falls into either 2,3,5 years, and there appears to be some 7's out there. My understanding is that subprime and Alt A most commonly have to use the more toxic 2 and 3 years reversion (if that's the correct term). Of course at that point, people (prime, not subprime) with $60,000 incomes and $400,000 mortgages (plus whatever negative amortization has piled up) will then be regular amortized for the remaining term. At today's 6.4% level, that would be $2,502 a month P&I alone. Of course subprime and Alt A will be paying higher than that. A glance at this chart showing originations suggest two and three year reversion to reg amortization will be coming to towns near you soon enough, with 2006 and 2007 promising to get brutally ugly. idorfman.com

To: Ramsey Su who wrote (37387)	7/31/2005 3:09:35 PM
From: carranza2	Respond to of 110194

The shock is going to be the reset date, potentially 5 yrs from origination. That is assuming all market and employment conditions remain stable between now and then. A big assumption. I feel very sorry for the poor folks who are putting their butts on the line for an on-the-come bet that they (1) flip to the greater fool, and (2) are relying on interest rates staying as historically low as they are. There will be money made in real estate, huge amounts of it, but it will be at the bottom of the cycle.