Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: mishedlo who wrote (44832)	11/6/2005 11:14:28 AM
From: Tommaso	Read Replies (1) \| Respond to of 110194

Am I to understand that you own your house with an adjustable rate mortgage?

To: mishedlo who wrote (44832)	11/6/2005 11:42:16 AM
From: Ramsey Su	Read Replies (3) \| Respond to of 110194

Mish, loans are not all that complicated but easily misunderstood. Start with this: countrywide.com The best way to compare apples to apples is to stick with, first of all, the 30 yr fixed rate conforming loan, which is a full doc loan, MI required for less than 20% equity and for loan amounts below $359,000. Let us use $300k loan amount as an example. At 5.25%, the monthly payment is $1,657. At 6.25%, the monthly payment is $1,847. Obviously, that is a $190 difference. What that also means is the borrowers' income (using a 33% ratio) need to go up 11.5% from $4971 to $5542 a month to qualify for the same loan. I opine this has the largest core impact to real estate nationwide. As we know, obscene markets such as Southern Cal have already relied upon all kinds of non conforming financing to fuel the bubble. Now those options are of diminished value since they have been overused and their original benefits exhausted. There are two components of financing that I believe are generally misunderstood. The first is this fabulous "monthly savings" when refinancing. The more accurate way of putting it should be: Monthly savings but don't forget you are re-amortizing over a longer period. countrywide.com While the "monthly savings" figure is true, no where would that tell you that the number of payments is now going to be increased. The second is the impact of the ARMs adjustment vs reset. An adjustment is usually limited based on the original rate plus some maximum amount the loan may adjust up or down from. A reset is when the original terms are basically over and a totally new rate will start. ARMs have been around for a long time but they were usually the 30yrs ARMs with adjustments but no reset. The popular ARMs today are all the 1yr, 3yr or 5 yr ARMs with a reset at the end of the original fixed period. I believe this reset is something that may not only result in a huge payment shock but also is something that had not been stressed tested in previous markets, it did not exist in previous down cycles. Can we afford to allow the real estate bubble to burst?

To: mishedlo who wrote (44832)	11/6/2005 10:02:42 PM
From: steve from ihub	Read Replies (1) \| Respond to of 110194

if you were not planning on moving in a few years why did you not lock in at what were some of the lowest fixed rates in history? also what kind or increase has the adjustable had to raise the min payment from 500 to 800 a month?

To: mishedlo who wrote (44832)	11/6/2005 10:22:53 PM
From: steve from ihub	Read Replies (1) \| Respond to of 110194

i ran out of time to edit in another question. i am curious because i think the liberal usage of ARMs that was so prevalent the past few years is going to come back and bite a lot of folks in the arse in a rising rate environment. was it a 3, 5, or 10 year adjustable and how long ago did you get the loan to see the 60% rise in the min payment. my feeling is there are a lot of americans that are going to get squeezed hard by this and will knock the housing market for a loop. reading your follow on posts its nice to see you are in good shape.