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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 (45568)	11/15/2005 2:22:12 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

Ram, don't forget the pay option neg ams that were put in place in late 03-early 04. Most have clauses that revert to reg am at 110% or 115% of the initial loan amounts. Further the indexes are tricky as they typically are above the quoted rate. For instance a "better" borrower might have a margin of 2.25% or 2.50%, but on a one year Libor which is now 4.80%, his "real rate is 7.05%, all tacked on as neg am. And if he's been paying only 3 or 4% because of caps, he'll hit the 110% or even 115% soon enough. I'd say 2006 will get ugly for this crowd.