Pay Option ARMs – The Implosion Is Still Coming Despite Low Rates

Posted on December 23rd, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

There is some serious Pay Option ARM (POA) misinformation going around. Everywhere you look there are stories about how the low index value on the LIBOR will automatically ‘fix’ Pay Option ARMs and drop borrower’s payments to almost nothing. Sorry folks, no cigar.  It is shotgun stories by the major media and television personality analysts that set the market and consumer up to for disappointment every time.  Over the past year and a half this is my forth story on why a particular bailout or market event will not help the POA’s.

Like the failed mortgage modification efforts and foreclosure moratoria you read about almost daily, this will be a non-starter for most.  It is truly a shame how badly constructed these loans really are and how many home owner and bank balance sheets they have destroyed. These loans are much more toxic than Subprime ever was – at least with Subprime the principal balance doesn’t grow each month!  They are in a class of their own and ultimately will need a bailout of their own I am sorry to say.

The POA was a favorite across all borrower types especially the middle to upper-end home owner in the bubble states. The broad failure of this loan type will have severe consequences on already depressed CA real estate and on the middle to upper-end home owners in particular.

Monthly Payments / Neg-Am Set-up / Recasts / Qualifying / Negative-Equity

Pay Option ARMs have four or five monthly payment choices. The majority pay the minimum monthly fixed payment rate, known as the ‘teaser’ rate. The percentage of borrowers who opt for the lowest payment has increased as values have fallen. The minimum monthly payment increases 7.5% per year regardless of what happens to the underlying index value. Therefore, this recent drop in rates means nothing for most POA home owner’s monthly mortgage-related outgo.

With the low underlying index values borrowers won’t accrue as much negative amortization but at the end of the first 5-years, most will still see their payment jump sharply. If the underlying indices stay low for years into the future it will make for lower adjustments upward several years from now on subsequent resets, which may be helpful for some.

But this drop in rates does little for those who have had their loan for a few years in the near-term. These borrowers accrued large amounts of negative-amortization as the indices soared from mid-2004 to 2007 and this has to be factored into the first reset.

Past Underwriting Indiscretions — for much of the time that POA’s were in existence many banks qualified the borrowers at the minimum monthly payment rate or based upon interest only payments. Additionally, over 80% were stated or limited income documentation loans. Both of these factors make knowing how the borrower will react to even the standard 5-year hard recast nearly impossible to forecast given they were never underwritten to take into consideration a reset of any type.

What also must be taken into consideration is that a large percentage of underwater, over-leveraged Subprime, Alt-A and POA borrowers are defaulting even prior to their reset date due to the epidemic amount of negative equity. POA’s were mostly originated at higher LTV/CLTV’s in the hardest hit states meaning they are significantly underwater even without the compounding effects of negative amortization.  In CA, a heavy POA state, 60% of all mortgage holders are either underwater or within 5% of being underwater unable to sell or refinance.

Pay Options Have a Floor Rate That Always Results in a Payment Spike

The margins (lender profit) were very high on these loans during the ‘POA mania’ portion of the great bubble.  I have seen as high as 5% but the average for Prime MTA-based POA’s is probably around 3.25% to 3.5%.  The rates below from a large-named lender still in existence today show margins as high as 4%. The margin rate will always have to be paid regardless if the underlying index value falls to zero, which is not possible. The 1HPP (one year hard pre-payment penalty) loan below was the most popular carrying a margin from 3.025% to 4.000% followed closely by the 3-year prepayment penalty loan.

The program and rates below are from July 2006, which was the peak of ‘POA mania’.  It is based upon the MTA index, as 80% of all POA’s were and 80% of all Pay Option owners pay the minimum monthly payment.

Reference key for program below: Start Rate = fully amortized ‘payment’ rate. This increases 7.5% per year.  Points = broker rebate (yield spread premium. This is the percentage of the loan amount paid by the lender to deliver that rate and margin). NPP Margin = No Prepayment Penalty.  1HPP = 1 year Hard Prepayment Penalty.  3HPP = 3 year Hard Prepayment Penalty.

After 5-years, most POAs (other than Wachovia’s 10-year) will hard recast to pay off the remaining balance in 25-years. When the loan is recast, the payment required to fully amortize the loan over the remaining term becomes the new minimum payment, and the previous payment cap does not apply.

Standard 5-Year Recast vs. Negative Amortization Limit Recast

The 1st Standard 5-Year Recast occurs when the 61st payment is due. Standard 5-Year Recasts occur each 60 months thereafter.

A new minimum payment is calculated for the payment due on the 61st month based on the fully indexed rate at that time, the remaining term of the loan and the loan balance at that time. There are no other payment options for this (61st) month. This new recast payment becomes the new minimum payment for the upcoming 12 months subject to a 7.5% (or whatever your payment cap is) increase the following 12 months and subject to a full recast 5 years from this payment recast, i.e. when the 121st payment is due.

The 1st Negative Amortization Limit Recast occurs when (or if) the negative amortization cap is reached. Most Pay Options have a neg-am cap of 110% to 115%.  Wachovia has one of the highest at 125%. At this point, the loan is automatically recast for the remaining portion of the standard recast term (5 years) and then subject to recast at the normal scheduled (5 year) recast period.

For example, if the loan reaches the negative amortization cap on month 59, the loan goes through a Negative Amortization Limit Recast. At the end of the 5th year, on the 61st month, the loan goes through a scheduled Standard 5-Year Recast.

Most Pay Options Based Upon MTA Not LIBOR

Roughly 80%+ of all Option ARMs were based upon the MTA, which is still over 2%. The remainder is based upon the COFI, COSI and LIBOR…probably in that order as well. Very few loans outstanding are true ARM loans of any kind are based upon a short-term LIBOR index.

The MTA, also known as the 12-Month Moving Average Treasury index is the 12-month average of the monthly average yields of U.S. Treasury securities adjusted to a constant maturity of one year.  It is calculated by averaging the previous 12 monthly values of the 1-Year CMT (Constant Maturity Treasuries) Index.

There is more…

The CMT is a set of “theoretical” securities based on the most recently auctioned “real” securities: 1-, 3-, 6-month bills, 2-, 3-, 5-, 10-, 30-year notes, and also the ‘off-the-runs’ in the 7- to 20-year maturity range. The Constant Maturity Treasury rates are also known as “Treasury Yield Curve Rates”.  The CMT indexes are volatile and move with the market but more quickly than the COFI Index or the MTA Index (see historical graph below).

Therefore, it would be something else if the CMT followed short-rates down to zero. I think if this happened there would be other things to worry about than a few hundred billion in Pay Options blowing up.

**Please note in the chart above that even though the MTA is down to 2% now, it was as high as 5.25% in 2006 and 2007 forcing large amounts of negative-amortization on most all POA’s originated from 2004 until 2007.  When payment rates are so low and margins so high, many are sitting right up against their respective 110% or 115% maximum negative amortization limit which forces a hard reset prior to the 5-year scheduled reset.

Actual Pay Option ARM Payment Choices and 6-Year Payment Schedule

Below are the five payment choices available of which the majority chose the ‘Minimum Monthly Payment’, option 1). Each year the minimum monthly payment rate increases 7.5% regardless of what happens to the underlying indices.

Also below are the annual payment rates for the first 5-years up until month 61 and the hard recast. The loan scenario uses a $300k loan amount, 1.25% payment rate, 7.5% annual payment cap, 3.5% margin and is based upon the MTA taken out to the 61st month and first recast. With a 2.03% MTA and 3.5% margin the fully indexed rate is 5.53%.

It is very important to note when evaluating the following schedules that:

a) for much of the time that POA’s were in existence many banks qualified the borrowers at the minimum monthly payment rate or based upon interest only payments. Additionally, over 80% were stated or limited income documentation loans. Both of these factors make knowing how the borrower will react to the standard 5-year hard recast nearly impossible to forecast given they were never underwritten to take into consideration a reset of any type .

b) the schedules below are for new loans originated today and not take in account many who have had their loans for a few years when the underlying index values soared. All of the previously accrued negative amortization has to be re-calculated into the payment upon hard recast at 5-years or at the maximum allowable negative amortization amount of 110% to 125%.

POA Monthly Payment OPTIONS with MTA at Current 2.03% (Fully-Indexed Rate 5.53%)

  • 1) Minimum Monthly Payment: $999.76 (Deferred Interest/Neg-Am = $388.49)
  • 2) Interest Only Payment: $1388.25
  • 3) Fully Amortizing 30-year Payment: $1713.26
  • 4) Fully Amortizing 15-year Payment: $2459.70
  • 5) Fully Amortizing 40-year Payment: $1558.14

POA Monthly Payment OPTIONS if MTA Falls to 1.03% in 12-Mo’s (Fully-Indexed Rate 4.53%)

  • 1) Minimum Monthly Payment: $999.76 (Deferred Interest/Neg-Am = $138.45)
  • 2) Interest Only Payment: $1138.25
  • 3) Fully Amortizing 30-year Payment: $1529.52
  • 4) Fully Amortizing 15-year Payment: $2303.11
  • 5) Fully Amortizing 40-year Payment: $1358.93

Actual Year 1 through Year 6 – Monthly Payment Increase Schedule

  • 1) Year 1: $999.76 = Choice 1 – Minimum Monthly Payment (80% of cases)
  • 2) Year 2: $1074.74 = ($999.76 + 7.5% mandatory annual payment increase)
  • 3) Year 3: $1155.35 = ($1074.74 + 7.5% mandatory annual payment increase)
  • 4) Year 4: $1242.00 = ($1155.35 + 7.5% mandatory annual payment increase)
  • 5) Year 5: $1335.15 = ($1242.00 + 7.5% mandatory annual payment increase)
  • 6) *Month 61: = $1952.29 (Hard Recast to pay off loan in remaining 25-years)

IF the MTA drops to 1.03% from its present 2.03% over the next 12-months (no change monthly until month 61):

  • 1) Year 1: $999.76 = Choice 1 – Minimum Monthly Payment (80% of cases)
  • 2) Year 2: $1074.74 = ($999.76 + 7.5% mandatory annual payment increase)
  • 3) Year 3: $1155.35 = ($1074.74 + 7.5% mandatory annual payment increase)
  • 4) Year 4: $1242.00 = ($1155.35 + 7.5% mandatory annual payment increase)
  • 5) Year 5: $1335.15 = ($1242.00 + 7.5% mandatory annual payment increase)
  • 6) *Month 61: = $1,707.59 (Hard Recast to pay off loan in remaining 25-years)

In summary, while low interest rates are good overall, the effects that lower rates will have on the now ‘infamous’ Pay Option ARM will be muted for many reasons.  The broad failure of this loan type will have severe consequences on already depressed real estate values in the bubble states.

The only way to ‘fix’ POA’s is to re-underwrite and aggressively modify like I talk about in my recent report Mr Mortgage: My Case FOR Mortgage Principal Reductions .

**For those of you looking for another take on the Pay Option crisis with the same outcome, please check out my good buddy Dr Housing Bubble’s recent report entitled: Option ARMs For Dummies – Why 4.5% Rates Will Do Absolutely Nothing For These Toxic Assets.

More Mr Mortgage Reports

45 Responses to “Pay Option ARMs – The Implosion Is Still Coming Despite Low Rates”

  1. I’ll fix the problem…..let me just this bulldozer started.

  2. yes, a decline in rates is not helping, just as economic growth continues to decline, despite low oil and gas prices

    you can’t refinance an underwater house, and you can’t benefit from cheaper gas if you don’t have a job

    the onerous pre-payment penalties and resets don’t help the situation, of course, but equally problematic is the collapse of demand

    by the way, forgot to mention the other day that, yes, my young son is quite a lot of “fun”, just when I think I’ve figured him out . . . he’s figured out new ways to get around me

  3. Cheaper payments, if you get them, does not change the fact that you owe more on the house than it’s market price. Glub, glub,glub. Rising unemployment + upside down mortgages = Walk Away.

  4. Since the CMT is now .45%, the MTA will, over time, average its way down there, too. If the MTA is 1% and the margin is 3%, it’ll adjust to 4.00%. An Option ARM that had a start rate of 1.25% calculated as though it were amortized over 30 years would have had total payment increases over the first five years bring the minimum payment up by by 33.5% from year one to year five. Assuming neg am having brought the balance up to 115% of the initial loan amount and a 4.25% fully-indexed rate amortized over 25 remaining years, the minimum payment at the start of year six would be 40% higher than the minimum payment in year six. The above figures exclude property taxes & insurance, so the real total-payment increase will be less than a 40% increase. Many people could probably struggle to pay the payment in year six, but I agree that they’ll choose not to, when they’re so under water.

    Option ARMs were terrible products. Not only because of the neg am & potential for misleading borrowers (by design, if you ask me), but because they were monthly ARMs with a high margin. I never did them. I can’t feel much pity for the borrowers, though. They knew it was too good to be true: a $500k loan for $1,600 / month.

  5. Dan – when it comes to predicting future bond yields you can’t. Many think that this move in Bonds is a blow off top from a major 5 year bull run. Regardless of what stocks say with the 45 vix, the Bond market is screaming disaster. Regardless, if any of this $9 trillion guaranteed to fix this problem grabs hold Bond yields will soar. For my analysis, I dropped the MTA down to 1.03% and it still jacks up the payment 70% over year 1 minimum.

  6. all this begs the question: how many of these loans are still out there? some refi’d out when they could, so you cant count those. The only numbers I ever see are ‘% of mortgages which are ARMs’ – which includes IOs. Anyone have a breakdown of ARMs by type of ARM?


    The timing of your article is perfect because I actually have one of these POA from WaMu. Let me give you my real live story and Mr. M tell me what I should do?

    I purchased my house for $173,750 in May 2004. I put 20% down or $34,750 making my initial loan amount $139,000. The margin is 2.35%. My credit score back then was 720. My current rate on today’s statement is Index 2.478% + Margin 2.35% = 4.828%.

    The product was a 1-month MTA or something to that affect. The rate resets every month but the payment stays the same for that year. I only paid the minimum due every month. Mr. M you are dead on a few years ago when rates moved higher I was entering severe negative amortization. I was stuck and I could not even refinance because all rates both long and short were high.

    Today, on my most recent statement my loan balance is $147,804 and it says I have “unpaid Interest” of $9,244. This is 6.65% increase in my original loan amount. The big 5-year loan term reset is going to reset on May 2009 to fully amortized. Minimum payment due right now is $619/mo. I suspect this will jump to around $849/mo. if rates keep doing what they are doing.

    If I simply did a 30yr fixed which was at 6% when I bought the house my mortgage balance today would be $130,446 and not $147,804. I guess all I can do is try and refinance at 4.5% for a 30yr which will make my payments $749/mo.

    I am sure I am not the only one in this position. Is there any chance the banks will come forward and say to everyone with this produce that we will forgive or write off the negative amortization, which for me would be $9,244?

    Thoughts? Comments? Advice?

  8. admin

    When you are talking bonds I assume that you are talking treasuries.

    I know the thought, that all this money is going to overload the debt market and in order to raise all of these trillions, they are only going to be able to do so with higher interest.

    Let me let you in on a little secret. The treasury is going to monetize the debt though the Federal Reserve. The treasury is not going to be auctioning these trillions on the open market. That would shoot up everything and then everything blows up. It is quite likely the rest of the western world will be doing the same.

    It roughly works like this. The treasury gives the treasuries to the Fed and by law, the Fed has to accept them. The Fed holds the treasuries as collateral against the credits or currency issued.

    Instant money and the public debt markets are bypassed. No interest rate pressure. In essence, the Fed is “buying”. Remember the “zero” in the odd release on the Fed funds rate? My take on that is that the zero is reserved for the Treasury.

  9. (Con’t)

    One more thing I forgot to add is there is a cap in this product of +/- 7.5% on the monthly payment.

    So, for some people depending on when they were reset, even if rates drop substantially like they have done, their monthly payment will only drop by 7.5% per each reset year. In other words they don’t benefit from any drastic rate decrease like we are experiencing right now.

  10. (Con’t II)

    Oh, and the current market value of my house today is about $120,000 if I am lucky.

  11. The POAs are DOA when they reset. Neg-amortization added onto a depreciating property value is the death spiral for much of CA and FL property. I keep hearing that now is a good time to buy. Get a clue.

  12. I thoroughly enjoy your insights on the real estate market, and even though I am not a realtor, I can understand why these products are so toxic. After reading the details you outlined on these products, is there any doubt that these products were fraudulent by design? Even though it is unfortunate for all of us that many mortgage holders will be walking away from these loans, I can hardly blame them. So when do the prosecutions start?

  13. I sincerely hope you are going to write a tirade on the latest article to come out from the Calif Assoc. of Realtors about sales up 83% and inventories down. What trash. Anybody with half their sense living here can see the sales are going to the Banks REO classification and the drop in inventory is due to the HUGE number of unlisted REOs sitting empty on every block of every city in the state. This mess is only getting bigger. Who do they think they are kidding!

    Let em have it, Mr. Mortgage. This should not go unanswered.

  14. Anyone know if you can actually get your lender to do an early reset on an ARM?

    I live in CA, and am currently underwater on my 7 year ARM. I got it in 2004, so it resets in 2011.

    The lender is Countrywide.

    I have no intention of walking away from the property. I just want the reset to happen now instead of in 2011. I want to lock in the current low rates, instead of taking a chance on what rates may be in 2011. If the Fed does succeed in creating inflation, who knows what rates might be 2 or 3 years from now.

    I called Countrywide and they are totally clueless. Spoke to several people there and they all told me that they’ve never heard of anyone asking for an early reset. They suggested I refinance, but that’s out since I’m underwater.

    If anyone has any ideas, that would be great. Thanks.


  15. What will happen? What will really happen?

    In a sorta existential way…

    These are interesting times we live in.

  16. To all,

    As with most things this Devil is in the details. I have a Wamu POA with a 2.21 margin and a 40 year am. I love it. I love it just like a exotic sports car owner loves their powerful machine. For the right borrower it is a powerful loan product, the true problem is that the loan was sold to everyone and not every one should be driving a Porsche.

    With a margin under 3% and borrower that really could have afforded his mortgage payment at the prevailing 30 year fixed rate at the time of origiation this can be a great loan.

    For the borrowers that truly belong in the product the falling index will be a blessing. It may, in addition help others stay in their home for a couple of more years as it will curtail the neg am.

    As bad as this product can be for the wrong borrower consider the benifit of all the money that owners didn’t put into the mortgage. Falling values have more or less screwed everyone regardless of loan type but POA borrowers will have put much less money into a sinking ship.

    Former Wamu and Wachovia LO

  17. I’ve looked closely at option ARMs, and have been worried about them for years, and have hated the product. However, I disagree with you on a number of points. First, for “prime” MTA ARMs, I saw most margins in the 2.75% range. Second,with the latest 1-year at 0.45%, and the Fed saying that its “0-0.25%” funds rate target is expected to remain for a while, the MTA will almost certainly decline throughout the next year.

    With that in mind: an excerpt from the LEHC daily:

    While I’m not even remotely bullish about the prospects for option ARM credit performance, it is worth noting that the recent sharp decline in interest rates has made it much less likely that loan recast dates of most option ARMs will be accelerated because of the “neg-am” limits.

    Let’s consider a “typical” option ARM originated over the 2005-2007 period:

    Minimum initial payment/interest rate: 30-year fully amortizing payment based on 1.5% rate
    “Teaser” rate period: one-month
    Mortgage interest rate after teaser period: index plus 275 bp margin
    Index: MTA (12 month moving average of the one-year constant maturity Treasury)
    Minimum annual payment cap (ex recast): 7.5%
    Loan recast date (no neg-am limit hit): Month 61
    Neg-am Limit: 110% – 125% (we’ll use 110%)
    Minimum annual payment at recast: fully amortizing payment based on remaining loan maturity and an interest rate equal to the current index plus margin

    Thus, e.g., a $250,000 “option-ARM” loan would have a minimum payment of just $862.80.

    Now if this $250,000 option ARM was originated in mid-2005, and if the borrower made the minimum payment each month, by mid-2008 the borrower’s loan balance would be about $271,867, or about 8.75% above the original mortgage amount, and the borrower’s payment would be set to adjust to $1,071.85 (having increased by 7.5% each year).

    If the one-year Treasury, which averaged 2.42% in June 2008, had stayed at that rate, then this loan would hit its 110% “neg-am” cap in May 2009; the new required minimum payment in June 2009 would be based on a fully-amortizing 26-year loan with an interest rate of about 5.4%, and would be 52% higher than the previous minimum payment, rather than 7.5% higher with no recast.

    However, the one-year Treasury rate has come down sharply, and right now it is about 0.45% or so. If that rate stays low, then this loan does NOT hit the neg-am limit, and the loan would not “recast” until mid-2010. If rates stay low until then, the new payment at recast would be based on a fully amortizing 25-year loan with an interest rate of 3.45%, and the new payment would 17.2% higher than the previous minimum payment.

    For a similar option ARM originated in mid-2006, the maximum “neg-am” cap doesn’t come into play either. In fact, if one-year Treasury rates remain this low through the first half of next year, the minimum payment is actually sufficient to pay not simply interest, but a bit of principal as well. As such, there is no “acceleration” of the loan recast date for mid-2011. And for similar option ARMs originated in mid-2007, the minimum payment is sufficient to start paying down some principal by mid-2009.

    Payment “shocks” arising from alt-A “hybrid” loans next year are also unlikely to be “shocking” as well. Indeed, if rate remain low, most alt-A hybrid loans set to have rates reset next year will see rates adjust downward.

    Of course, just as with the subprime market, the major issue behind the surge in delinquencies, defaults, and foreclosures has not been “rate resets” or “payment shocks.” Rather, it has been a combination of declining collateral values, excessively easy mortgage underwriting, and incredibly sloppy origination policies, practices, and procedures. However, right now the “alt-A” and “option-ARM” RESET/RECAST problem doesn’t look as scary as it did just a year ago – and, quite frankly, it would take an analyst less than 60 Minutes to figure this out.

  18. Dick – sit around for a few more months and I suspect a major class action suit will take care of these loans.

    Interested reader – these programs are fine in a stable interest rate environment when values steadily rise. They are wonderful in a low rate environment when values surge. However, when values fall in a high rate environment like we saw from 06-07, these loans will crush you. If the underlying index values had not fallen from where they were, these loans are so toxic the entire house would have just blown up on recast – seriously. It just would have ceased to exist along with the home owner.

    Judy – I am so fuching sick of the Realtors. I can’t waste a minute on those whack jobs.

    Henry – interesting thought. Maybe default and they will throw you a bone.

    Stevenks – house prices are going to $2200. That’s it. $2200 buys you a house. Given the slope of depreciation in the past 18 months, that will happen within the next 18 month.

    Lance – you are correct. Some will be helped by this but the vast majority who pay the minimum and always have must deal with years of neg-am even if they can benefit from the falling index values. If these loans were around today, they would be a great deal thats for sure.

  19. Mr. M & Bert –

    “According to the US Treasury/Federal Reserve Board, as of September 2008 US government debt was held by the following countries.

    The biggest three owners of US Treasury bonds are:

    1. China – $585 billion
    2. Japan – $573 Billion
    3. United Kingdom – $338 billion

    In this light the announcement that was made today in the English language official organ of the Communist party, the China Daily, is thought provoking. “China’s increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis…”

    This follows an announcement made about 2 weeks ago by the head of China’s sovereign wealth fund to the effect that the current high value for the US dollar might not continue.

    Perhaps the Chinese are sending a warning that should be attended to?”

    The bond market is where the big money parks its big money. Not coincidentally, with other choices scarcely available to the Treasury/Fed, it is the current bubble to inflate – and to watch the spreads on closely.

    Bert – that ‘0’ you speak of? Oh yeah, that zero is the next arrow to pulled from the quiver of quantitative easing. It’s called Adding it to the currency…

    Peace –


  20. Mr. M, Yes, I agree there will probably be a class action lawsuit on these POA. Do you refi now out of the POA or do you wait for the class action lawsuit so you can get the neg amortization off the loan?

    You were right on target in 2006-07 of high rates with negative amortization piling up on my mortgage and fast. There was nowhere for me to hide. I can honestly say the FED clearly orchestrated lows both on the short and long end. Can you imagine what these POA loans would look like if rates were still high? It would be the perfect storm (decrease in asset values coupled with high rates).

    I suspect the FED is giving all the POA holders a chance to refi into a 30yr fixed at 4-4.5%. After that I suspect the economy recovers and rates move higher. Then, the ones who didn’t refi out of a POA will get whacked like back in 2006-7. Mr. M, Do you refi now out of the POA or do you wait for the class action lawsuit so you can get the neg amortization off the loan?

    My brother has the same 12 MTA POA that I have on my house. His was fully recast after 5 years in January 2008 and he is paying $1,416/mo right now. He recently got his new annual January 2009 reset letter saying his new monthly payment will be $1,310/mo. It also says “the monthly payment would have been $1,138 but there is a cap +/- 7.5% that the monthly payment can fluctuate.” See. Rates did move significantly lower but he gets screwed and can’t participate in that because of the cap.

    How can this be a good product?

  21. Mr. M.
    When were most of these loans originated and when would you suspect the most pain will be felt? Trying to get an idea of the time line here. I know that a slug of resets will be forthcoming in the next few months, but whats down the road and how long could this last?

  22. C.C. Now that the US is buying far less of what Asia is producing, they will have fewer US$ with which to buy our debt and probably less of an appetite for it.

  23. Startling facts. Let’s compare the A-Bomb state of Florida with the H-Bomb state of California. Startling differences. Information gleaned from Federal Reserve dynamic maps.

    Florida REO per 1,000 units

    Sub prime 1.7
    Alt A 0.4
    Total non prime per 1,000 units, 2.1

    California REO per 1,000 units.

    Subprime 4.5
    Alt A 2.2
    Total non prime per 1,000 units, 6.7

    According to the Federal Reserve, California has 219% more REO than Florida banks in the less than prime circuit…

    Mr. M, do you concur with these numbers by the Fed for CA?

  24. It is no longer just foreclosure due to crappy loans and negative equity, it is turning into foreclosure due to economic calamity.

    BertDilbert exclusive “California Burning” report….

    How bad is it? Here are some stats I pulled from the ports. Both the Port of Long Beach and Port of Los Angeles put out statistics claiming their worth in jobs. The Port of Long Beach measures their impact based on regional jobs. The Port of LA measures by state and national impact. Side by side, they rank #1 and 2 in the nation.

    Last I checked years ago, Long Beach is able to generate revenue at about half of the operational cost of LA. On the surface, this implies that the Port of LA wastes a lot of money and is inefficient. Perhaps that is the reason that LA extrapolates their worth out to the state and national level, to justify their operational cost at a questionably higher rate. Let’s get down to business.

    On a container basis, LA is approximately 15% larger than Long Beach.

    Long Beach claims economic impact:
    30,000 jobs (about one in eight) in Long Beach
    316,000 jobs (or one in 22) in the five-county Southern California region
    1.4 million jobs throughout the U.S. are related to Long Beach-generated trade

    LA claims
    Regional Port of Los Angeles benefits include:
    1.1 million jobs in California
    3.3 million jobs in the United States

    Comparing the two, it immediately becomes apparent that LA feels that their containers are worth far more jobs than Long Beach containers. On that basis, let’s throw out LA claims as nothing but hot air and go with the more conservative Long Beach. On a Southern California Regional basis, the combined ports are responsible for 679,400 jobs in Southern California. Let’s assume that there was some double counting in the immediate port area and lower it down to 650K.

    Using the Marine Exchange’s 30% decline in ship bookings for the next six months, that would potentially place 195,000 jobs in jeopardy. On an unemployment basis this represents an increase of approximately 2.7% for the 5 county region.

    We have yet to feel the impact of this downturn. It takes approximately 45 days for a vessel to complete it’s Asian trade route round trip, some less than that. You also have to allow yard time before shipping and pickup, say three days each side. Now add in your lead time to a Chinese manufacturer to ensure that you have your goods in time for Christmas. Point being is that the activity to date has been orders placed before the crap really hit the fan. Late December and into the first quarter is when the impact is really going to start to be felt.

    Preliminary unemployment data for LA county for the month of November is 8.7%. This is up from 8.2% recorded for the month of October. Taking the natural assumption that trade jobs will be most concentrated closer to the ports, LA County could have a 3% unemployment impact due to a slowing harbor alone.

    Based on this data, coupled with general economic slowdown, LA County could see an unemployment rate in the 12-13% range in the first quarter of 2009.

  25. Some of the comments state that the borrower could refi into a 4.5% fixed. However, if you look at Mr. M article, most of these loans were done for upper end homes. Meaning most of these borrowers would not qualify for a FHA loan due to their loan balance. I suspect that there will be a storm on these loans not matter what is done with rates. 99% of people who took this loan never belonged in them in the first place.

    Also, the reality is that how long can rates really be kept low? Years. I doubt it.

  26. Trying to blur the lines now that Alt-a implosion isn’t panning out? it’s all about the Option Arms (with negative am)

    As a mortgage guy you should know that Option Arms need to qualify based on ability to make interest only payment (which resets to Libor)

    talk about spreading misinformation

  27. Mr. M. from what I have been reading I get the sense that auto recast have been kicking in at a fairly rapid clip. I know the reset schedule has them going out (along with prime and Alt-A) to 2012, but I am of the opinion much of these will reset long before then. Add in the pile of 30% – 50% re-defaults coming from the (2) million or so reworked loans in 2009. Then add in the Alt-A, and Prime defaults in 2009. We could be looking at a fairly nasty 2009 housing situation in this country. I smell principle reductions coming and coming fast!!!

  28. […] They also say that the outlook for housing prices is grim, they estimate that home prices are only a little more than half way finished declining. That through September, home prices have fallen an average of 21.8% from their peak in 20 major metropolitan areas (so they probably have another 20% to go). I’ve read other estimates that we in Los Angeles reach bottom November 2010. This is something the Obama economic stimulus plan will deal with, some say a 4.5% interest rate for buyers and maybe even 4.5% interest rate to refinance, see this article at Financial Times. Of course, we don’t yet know what Obama’s economic stimulus plan has in store and how it will affect the housing market. For more about Option Arm or Alt-A loans, go here. […]

  29. My bankers tool for making publicly palatable principal reductions.

    The “Enhanced Evergreen Tax Credit”

    Congress would have to approve a tax credit in exchange for principal write downs.

    The tax credit would have special features in that they never expire and that the credits are transferable.

    The bank would have to be able to place it in the asset column in exchange for the principle write down. This means that there must be a ready market that could be made by the likes of JP Morgan etc. This would give the credits liquidity in the open market (whether real or fake).

    Because the government has passed a law to accept them and give them eternal status, because there is a ready market, the tax credit has the same quality as a T bill. Because it has the same quality as a T bill, the banks are able to count it at high value, and the Federal Reserve can accept it as an acceptable asset on the banks balance sheet.

    The bank would take a small hit on the principal reduction to tax credit status so that bank shareholders are not getting a free ride.

    Individuals and corporations would be able to buy the credits at a discount to face value (or additional credit added) in denominations of $500 either through a bank or from a public exchange via their brokerage account. This would enable a slight tax reduction when paying taxes.

    Everybody likes tax credits, green is very likable and “in” and who doesn’t like enhanced?

    Government likes the idea because they can hide the cost until the credit is accepted by the treasury.
    Politicians like it because they are no longer involved with homeowner or bank bailout political flack.
    Federal Reserve likes it because they don’t have to warehouse as many bad loans.
    Paulson treasury types would not like it because their power of God has been removed.
    Citizens like it because they get a tax break.
    Susan Day likes it because her bailout solution dream becomes possible.

    Additional cost: Finders fee of 1.2 million in the following split: BertDilbert and Mr. M 500k each. 200k distributed to be evenly distributed to blog posters by Mr. M with haters exclusion applied.

  30. Mr. Mortgage = Scores Again!

    it amazes me that the Gov’t still thinks it’s going to solve a 30 yr CREDIT BUBBLE by refi debt.

    the DEBT has to be ELIMINATED either paid off or walk away…

    Most under water should just walk away this is really the fairest to the tax payer anyway.

  31. You are shitting me right Johnson. Ah, its Christmas Eve. I will forgive and keep my reply for January 2nd.

  32. Shah of Plano

    You are right, the solution to too much debt is the debt that is causing the problem has to disappear. The huge losses across the board would bring the wrath on government for failure to regulate.

    Paulson looks like a dumbass by waving carrots of auto loans, student loans and credit cards. Paulson is shooting blanks.

    Admin RE Johnson: I had thought that you previously stated that the pay option arm was a subset of the Alt A.

  33. Mr.M., the (alleged) bankster/criminals didn’t even show up to court on their fraudulent lender charges. The judge was so pissed and ruled against them in 3 out of 3 motions. Shape of things to come??? If you are in a toxic loan, consult with a QUALIFIED attorney! 🙂

  34. […] home sales up 83.2%, median price drops 41.8% – SF Business TimesPay Option ARMs – The Implosion Is Still Coming Despite Low Rates – Mr. MortgageMortgage applications mushroom on lower rates – MarketWatchHappy holiday sign for […]

  35. Pay-option adjustables will no doubt experience high default rates after the recasts occur. That’s pretty much a given.

    That notwithstanding, it’s overstating the case to say that “[t]he broad failure of this loan type will have severe consequences on already depressed real estate values in the bubble states.” A little perspective is in order here. There are simply not enough POAs outstanding to have anywhere near such impact on the overall housing market.

    According to Fitch, there are currently $200B in outstanding option ARMs. That’s all vintages. That $200B is nowhere near subprime. There were $600B in 2006 subprime originations alone, of which approximately $300B are still outstanding.

    Moreover, the rate at which Fitch anticipates the POAs to recast does not come close to the intensity at which the 2/28 subprime ARMs have been adjusting. Here is the projected recast schedule for POAs:

    2008 = $4B
    2009 = $29B
    2010 = $67B
    after 2010 = $100B

    Even if recasting POAs have subprime-like default rates and loss severities, or even worse, they simply do not have the scale to cause such dire consequences in the overall housing market.

  36. Thanks for the comment. Fitch doesn’t know. They rely mostly on Loan Performance a division of First American. They rely upon recorded arm riders and have not been tracking that data for a long time. The dataset has only been available for about a year and a half and going back through millions of loans looking for neg-am info of a note to make the determination it is Option ARM is nearly impossible. Put it this way – Wachovia still owns $122 billion. Do you really think they have 60% of all option arms in existence?

    The are probably closer to $400 billion. I believe they are very responsible for price stickiness of entire middle to upper end communities in CA. I have done serious research on many 20k to 60k population cities in CA with median home prices above $500k and incomes over $85k that have held their value better than the median and most lower end.

    What I have found is that these communities have hybrid intermediate term and pay option ARMs as their primary loan types. Unlike 2/28 Subprime, these loans reset in 5 years. Therefore, Alt-A and Jumbo Prime had time on their side. Not any longer.

    Remember, most foreclosures are from lower income subprime loans in subprime regions. Subprime is a small slice. Wait until you see the damage caused by the Pay Option ARM failing – it will drop values across higher end areas so fast and start the lower end feedback loop in the higher end. We are already seeing it.

  37. BertDilbert:

    Happy Holiday to you too. What is the difference between Mr. M’s principal reduction and mine being a dream? Oh I know, stablization of prices at 125% of the market peak loss amount for the location.

    If I read your plan correctly, it places the entire loss on the taxpayer over and over again, what is so different than what Paulson already did with giving taxpayer money to the banks, except it is much larger?

    Seriously, Happy Holiday to you regardless of your “dig”.

  38. Susan, I kind of look at it as though math is math. All the credit in exchange for principal reduction does is make it politically acceptable to do so. I am not producing a plan but rather a tool to be used within a plan.

    The best way for California to recover is for individuals to walk and place the burden on the rest of the nation, rather than sending our political representatives on their knees begging and pleading.

    From my observation prices are going to continue to drop, unemployment is going to continue to be magnified in California and people are going to leave the state looking for better pastures.

    This combination not only places home prices lower but rents lower as well. From my perspective, the less debt and more money in hand for Californians, the better for CA.

    Here is your political problem again.

    45% mortgage contracts crappy loans in CA
    60% of dollar volume of those contracts in CA due to higher home prices verses rest of nation.

    But here is the big kicker Susan. Because the housing prices were inflated in CA, the losses on that 60% dollar volume is going to be higher on a percentage basis verses the 40% dollar volume that represents the rest of the nation.

    Prices are deflating as we speak and what we end up talking about is likely to push the dollar benefit to 65-70% in CA. How do you push that though Washington? The tax credit for principal reduction moves it outside of the Homeowner bailout and in essence is a smoke and mirrors ploy that is in a more acceptable form for passage.

    Meanwhile Californians using their right to walk away along with lawyers building skills in the bank verses homeowner arena will lower the size of any bailout proposal. We are just going to send the bill back to the east coast anyway.

  39. Just a note about Fitch…wait a minute.
    Aren’t these the same people who were handing out AAA ratings to known sick banks and especially insurers that had loads of toxic garbage on the books? Think about it, why would these Assclowns have any credibility when they are just pawns in the game?

  40. BertDilbert:

    Last I looked there wasn’t only one state, namely California that consisted of the USA. I am agreeing that the bubble states in general have and are continuing to affect most of the other states in decreasing values though.

    In reading your posts, I am able to assume you are not only very intelligent but not very optimistic about the USA’s future in general.

    Do you remember former Pres. Regan’s explaination of the difference of a recession versus a depression?

    “Recession is when your neighbor loses his job and a depression is when you do”. Think of it, it is a true statement to how individuals think and feel about their OWN economy, whether they live in California or any other state, unemployment is rising in every state.

    The majority of the population only cares about their OWN economy, rightfully so. The population of the USA expects its elected government officials to govern the country for the general well being of the majority and they all don’t live in California.

    The current deflationary cycle affecting housing values, while NEEDED to restore and correct affordability, is NEGATIVELY affecting the largest majority of the population (69%).

    The majority of the american public all surmise, some have proof, but most believe that the “unaffordabilty” and the excessive prices of housing came about due to a combination of lack of regulation from their government and “Wall Streets” greed for increased profits from “thin air” by creating un-sustainable mortgage products and their credit default swaps.

    It doesn’t matter whether it is the lack of regulation or the products that gave housing the bubble, the end result is the same to homeowners.
    The majority.

    What can be different is the depth of the loss of equity, for example Japans homeowners lost 90% of their equity, do we need to lose the same amount?

    What can be done to correct the situation, is my question. I am not just speaking of California but the entire USA.

    I am not picking on you, but your posts and opinions while certainly different from mine show a level of insight that I respect.

  41. OK Susan, lets move out from California and look at the USA as a whole. The reason I post what is best for CA is that Californians are in the biggest world of pooper and how do we save CA. From an economic standpoint the best way to revive CA is to put the most money in the hand of the consumer and that is walk and let prices assume their natural level. The natural level is supply and demand, and what people can afford and that is without government intervention. Government intervention includes deduction of interest expense. Everyone gets pissy when I talk about detectability of interest because that is their special entitlement.

    In the 60’s when something broke, we turned it over and read “Made in Japan” on the bottom. We laughed. Of course it broke, made in Japan explained everything. At the time, Japan was known for poor quality merchandise. To overcome this perception of low quality products, Japan as a nation, made quality a national goal. It was not long before Japan was banging on our doorstep with quality merchandise. Nowhere was this more apparent when comparing Japanese made cars to American made. US auto makers had to fight back on the quality issue. In retaliation, Ford came out with a new slogan “Quality is Job One”. In addition to the automotive sector, Japan selectively targeted our industries to gain market share. By then, everyone had stopped laughing, Japan had proved itself to be a serious economic competitor. The US responded with import quotas to protect the auto industry. Foreign suppliers responded with manufacturing on our soil.

    What is the point? The point is that every developing country goes through a development stage. They move from infant, child, adolescent to adult. The developing country is eventually producing products on par or better than the United States. The only barrier keeping them from competing in our markets is the cost of shipping and the cost of labor.

    The US in it’s stupidity, has pursued this consumerism policy where the theory is that we are going to buy stuff from emerging markets and as they grow, they will buy our advanced products creating trade. The developing country is going to supply us with all the basic stuff we need and we will ship back high tech at a high value added price and all will balance out. Well it has not exactly balanced out. Somehow they ended up with a pile of our Treasury debt. Amazingly, we went to Wallmart, bought all of their stuff thinking that we had gotten ourselves a deal, only to find that somehow out of the transaction we still owed money!

    It must be quite apparent at this point that consumerism is not all it is cracked up to be. We were supporting our economy through the subsidy of government overspending. Yet there was another economic support at work in addition to government spending. It was the creative financial apparatus of securitized mortgages. Securitized mortgages provided economic support beyond the government debt issuance. Securitized mortgages provided jobs in the home building sector, constructing houses we didn’t need. It provided an abundance of jobs in the sale and finance of RE, such as appraisers, mortgage brokers, loan officers, RE sales people just to name a few. It also generated high commissions and fees. The huge amounts of money made off these fees showed up in the worker productivity numbers. Americans were very productive workers! What a marvel those Americans!

    Yet there was another side to economic boost. That was the bonus of equity withdrawal obtained through rising home prices. Disposable income was boosted 6% or more during the bubble years, which when spent, augmented economic activity. How was this money spent? Mostly on higher lifestyles and reinvesting in real estate. Let’s characterize it as misspent. Sadly, our whiz bang American ingenuity financial products reverted to the equivalent of early era Japanese manufactured goods. They broke, with the primary difference being that nobody is laughing.

    Let’s move on past the blame game and see where we stand. We have just run though a quick history of the last 40 years. We are left looking at China and India in the adolescent/young adult stage with the only continent left being Antarctica. That would give us South Pole Station and a bunch of penguins. Don’t get me wrong, I like penguins, it is just from a trade standpoint, after they are skinned, they are unable to consume high tech products.

    Susan, the party is over. There are a lot more of them than there are of us. The rest of the world is reaching adulthood and we are not alone with this problem, Europe faces the same predicament. This however is about America’s problem. Our problem is that we produce too little and consume too much. If we want to buy something from someone else, we have to part with something of value that they want. Up until now, we have been able to satisfy that demand by exchanging US dollars but how long will they be satisfied with that?

    Our mortgage crisis has turned into an economic one. Consumers took on way too much debt and in many cases, the homeowners just walk away, leaving the problem with the bank and the bank passing the buck to Uncle Sam. What does this do? We are pushing debts that we cannot afford from an individual basis to a national basis, we are passing individual risks to national risks. We are not just stopping with consumer risks though, it seems that we are taking all the risks of every business imaginable and placing them out to the national level as well.

    This now moves us to the value of the USD. If you imagine the dollar to be the common share of USA and the USA is made up needy people and needy companies, it is not likely to be something you would visualize as being investment quality and certainly not AAA worthy. We have this American thing called Hollywood which projects out to the world what America is like. The rest of the world wants that vision that Hollywood projects. Hurricane Katrina served a purpose, it exposed the USA for what it really is, a bunch of fat Americans sitting on underwater homes looking for rescue.

    With the USA unwrapped, it is just like the publicly traded company that does not make a profit and to continue its existence, it must raise capital to keep the doors open. In the Wall Street world, this is called dilution and commonly results in a lower share price. People will invest, but only so long as they see some future turnaround and are able to recoup their investment principle with a profit somewhere down the road. Can the USA make a turnaround? Absolutely, but if that is to happen, it is not going to happen with us sitting in a chair flipping through HDTV channels, higher resolution does not fix the problem.

    We have been on this path over the last few decades of exchanging cheap products for higher paying factory jobs. Somewhere during that time, the common parting valediction became “Don’t work too hard” followed by the canned response of “Don’t worry, I won’t!”. For America to recover, this attitude is going to have to get beaten out of the system. It is going to take hard work and lots of it, and there is nothing like high unemployment to beat attitudes back into the system. Government nannying is not going to do it. Let me repeat that, Government nannying is not going to solve the problem.

    What was our trade off for high paying factory jobs that produced real goods? From the looks of things they turned into finance and fast food. If there is one thing we are good at, it is that we can produce a damn fine hamburger. You take some meat bread and cheese and slap it all together on a toasted bun and slug it down with a soda pop. What we did was take raw food products and value added labor to produce a product. To compensate for our glaring loss of manufacturing jobs, the Bush administration ran up the flagpole of trying to reclassify fast food workers into the manufacturing sector. Rightfully so, the idea did not fly. You cannot replace the value added in fast food and use that as a replacement for value added durable goods. The value added from fast food has a life expectancy of 24 hours (Less for Starbucks) and ends up as a turd in the toilet.

    What was the other thing that happened with trading American jobs for “Cheep Chinese”? It gave us cheap products that masked true inflation. As we replace jobs with inexpensive global labor, the cost of an equivalent American made product was undercut by a large margin. This would be a great accomplishment if it were in fact sustainable. The truth is that it is not sustainable by the simple fact that these “emerging countries” grow up. As they grow, they start competing world over, attacking what were previously “our markets” for goods and services.

    There is another thing that we discovered as emerging markets came to adulthood. They wanted the same things America wanted, hydrocarbons and other raw materials. Suddenly the world became a very small place and adulthood for emerging markets came with a price tag. The price of oil, copper, steel lead and zinc reached historic highs. Our current financial meltdown only places a pause in emerging market growth, competition for raw materials will not go away long term but will rear its head once recovery starts to happen.

    America has enjoyed decades of hard currency status. In the process however, America has turned soft and squishy, akin to the texture of a Big Mac. We are not going to be able to remain soft and squishy with a nanny government and retain our hard currency status. Unfortunately while CA government is dominated by the prison guard union, our national government is dominated by finance interest. Let’s dig into the bag and pull out a fast quote from Tomas Jefferson…..

    “I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.”

    I am not going to go into that whole affair because that is a story for a different day! Let’s just take a section and see Jefferson was right.

    “Already they have raised up a monied aristocracy that has set the government at defiance.”

    We just saw that played out now didn’t we? Americans by a large margin opposed the TARP and in total defiance to the wishes of their constituency voted in favor of the bankers. That must have been one hell of tennis match, head going side to side, from whom they are supposed to represent to the money and back again. We all know who .won that tennis match and this is where the soft and squishy American comes into play. Americans should have en-mass marched and demanded a recall of their elected officials. Instead, because Americans assume that government is going to fix the problem, they stayed at home, placated by their Internet and HDTV’s.

    What else did we learn from the TARP? We learned that in the most watched bill in the history of the world, congress could not pass a clean bill free and clear without including things like “arrows for small children”. What happened here? Obviously we had to buy votes in order to get the bill passed! This is nothing more than corruption exposed. What do you think happens when the rest of the world is not looking? If that is not a wake up call that Americans need to change the way business gets done, I don’t know what is.

    At the same time, congress said “We don’t care what you think” to their constituency, Americans sent the message back “It’s OK, we are just going to roll over and let you have your way with us!” Sadly though, it also sent the message that Congress can do as it pleases and does not have to answer to the American people. In a way, this is “taxation without representation” because we certainly were not represented in Congress!

    How did all this complacency happen? Maybe the stories about chem-trails and putting something in the water are true because apparently, we as Americans have turned into a flock of capons. For those of you that don’t know what a capon is, it is a rooster with no balls. Is there hope for America? Yeah, when Americans grow their balls back. Otherwise like the capon, they are just going to get carved and served up on a platter.

    So when do we get our balls back? When government has clearly shown that they have failed our expectation to provide and protect us. Already we can see with social security and medicare that the numbers just do not add up. Yet we go on with “We can’t afford it this month”, next month comes and “We can’t afford it again”. Now we are building negative equity at an exponential clip because “We can’t afford higher taxes right now”.

    Simply put ‘Susan, the life America is leading is on no sounder of a principle than that of the holder of a Pay Option ARM mortgage. Somewhere down the road America is going to get that hard reset and our payment is going to double. When that happens the 40hr workweek will be no more and your workweek will turn into “six tens” and subsistence living. At that time Americans will grow their balls back. God only gives us the seventh day, which I conclude means the other six should be spent working anyway.

    Just so you know, no animals were harmed and no animal byproducts used in making this post….

  42. I’ve discovered this site just a few weeks ago, and I find it is certainly of great value. In the various discussions here I see frequently the advice is for the hard pressed home owner to walk away from an impossible situation if the debt on the house exceeds the present value of the house. I’d like to raise two points in that regard: (1) The prices of houses fluctuate as does every other commodity, and it is entirely possible that a house that is presently underwater could come bobbing up to the surface at some future time, restoring equity to the home owner, especially in non-bubble real estate markets. To walk away is to ensure that the loss will be realized. (2) There are huge costs associated with walking away from debts on a house. In addition to the obvious large amount of time and some money that even the most economical move requires, that person or household fleeing from their debts still has to live somewhere unless they ware willing to join the growing ranks of the homeless. Unless the people fleeing their obligations have some free place to resettle in, they are going to be renters. What land lord in our time doesn’t require credit checks? Any land lord is going to be leery about a debtor fleeing a mortgage and very likely to demand large security deposits or even higher rents than normal. Add in the extra costs for purchasing most any kind of insurance since credit scores determine insurance premiums to a great extent, the inability to finance purchases at some reasonable level of interest and I think you will find that walking away, as attractive as it might be at the moment, is going to be very expensive in the long run.

  43. he is an example of a good reason to walk away.

    1. Who wants credit these days. That is what the governments wants and that is how we get into these messes.

    2. House is worth 375k and falling. Owe 490k. total pmts with T and I is over 3700.00. Can rent a home in the neighborhood for 1800.00. good thing for me is that the home and mtg is in my name and my wife has good credit and has been working for the past 5 years. Sit in a rental house and watch the priced drop and the rates drop and then snatch up another home( in my wifes name) in my neighborhood for 300k( saw a bank owned go for 290k last week )at a great rate and have a house pmt of 1800 to 2000k, Meanwhile I will probably be in my current home for a year while I save up cash for down pmt, security deposit, etc….

    I tried to do the right thing 2 years ago when I tried to sell another home and it took 8 months and I lost money. I could have let that one go. I already had a home. I rolled that neg into this home. no help with the lender on the other home which had a 12k prepay penalty( 2 month away from expiring)

    imagine saving 2k a month on house pmt. who needs credit, I will pay cashs and have some savings.

  44. Fourth not Forth.

  45. i noticed 11 district cof is up for third month in a row…3.155
    my 5/25 is resetting at 3.155 plus 2.875 = 6.040 or 6% for next 6 months from 5.75%

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