Were adjustable rate mortgages a factor in this disaster?

cayuga

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Tue Sep-23-08 01:14 PM
Original message

Were adjustable rate mortgages a factor in this disaster?

My sister got an ARM with affordable payments, initially. The payments escalated within a short time and more than doubled from the original payment. She would be better off right now to just walk away from the house as its value is upside down.

Does anyone believe that this was a premeditated move on behalf of the lenders and Greenspan, et.al. who raised the interest rate so methodically. If so, this was criminal bait and switch.

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TexasObserver

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Tue Sep-23-08 01:18 PM
Response to Original message

1. Yes, they are a big part of the problem.

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dipsydoodle

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Tue Sep-23-08 01:18 PM
Response to Original message

2. Have you missed something out somewhere ?

For the payments to have more than doubled the rate of interest would've more than doubled too unless the capital amount outstanding had also been topped up along the way.

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Yavin4

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Tue Sep-23-08 01:22 PM
Response to Reply #2

5. That's What These ARMs Do

The worse of the housing crisis has yet to be unleashed, the Adjustable Rate Mortgages or ARMs. These ARMs offered a menu of payment choices from the traditional fixed rate to the non-traditional wherein the "homeowner" would only pay a small, low payment for the first few years and then get hit with a massive payment.

IOW, some, maybe most, of these ARMs carried negative amortization.

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dipsydoodle

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Tue Sep-23-08 01:29 PM
Response to Reply #5

8. I see now.

That means that the early underpayment of interest was added to the outstanding capital. :hi:

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Yavin4

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Tue Sep-23-08 02:36 PM
Response to Reply #8

13. Yeppers, and The Real Scary Thing

These ARMs have not really started re-setting their payments. That fun begins at the end of the year and into next year.

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rucky

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Tue Sep-23-08 01:20 PM
Response to Original message

3. Your sister is a textbook case.

If she's been making payments, she should look into refinancing into an FHA Secure loan ASAP.

There were some bait and switch actions going on with the rates, for sure. Especially the interest-only loans, or Option ARMs. Borrowers should've been evaluated based on their ability to pay at the rate cap - not based on the teaser rate, or any strategy based on the future value of their home. Everybody involved - from Greenspan on down to the borrower - entered these agreements with a wink and a nod. Ultimately, the Loan Officer should've educated the borrower, and that's the first place I tend to point the finger.

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BlooInBloo

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Tue Sep-23-08 01:20 PM
Response to Original message

4. There's nothing per se wrong with an ARM....

It's only when you throw in (a) irresponsible lenders and (b) irresponsible borrowers that you get a problem.

With both (a) and (b) in place, you're bound to get a financial crisis NO MATTER WHAT the specific financial products are.

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nRkiSt

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Tue Sep-23-08 01:24 PM
Response to Original message

6. Yes it was criminal

and when the states tried to crack down, the Bushies sued the states to stop enforcing state laws to stop the abuse! Read this - Eliot Spitzer - Predatory Lenders' Partner in Crime - washingtonpost.com <http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html>

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dysfunctional press

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Tue Sep-23-08 01:27 PM
Response to Original message

7. imo- if you can't afford it a 30yr. fixed mortgage...

you can't afford a mortgage.

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Old and In the Way

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Tue Sep-23-08 01:30 PM
Response to Original message

9. Lots of ARMs were written to encourage more consumers to jump in.

The implicit assumption was the consumer could get in cheaply (or buy more house than they could afford) and could flip the house, in the future, with raising property values. When we refi'd a few years back, we declined that option...we always want to know what our liability is over time.

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One_Life_To_Give

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Tue Sep-23-08 01:34 PM
Response to Original message

10. Traditional ARM's probably not

Negative Amortization loans are something totally different. While they might technically have a place such as for a just graduated Nuro-surgeon. For alot of folks they were too good to be true.

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SoCalDem

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Tue Sep-23-08 01:36 PM
Response to Original message

11. Of course.. the "wimpy" loans were always a factor

Edited on Tue Sep-23-08 01:36 PM by SoCalDem

If you cannot "afford" to pay the payment NOW, why would you think you could later, as it rises and rises and rises??

The only way these loans "worked", was if you planned to flip it and move out (big pain in the ass) before the loan reset..or to re-fi as it reset and gamble that rates would be better or as good as they were before..AND that the market had gone up..

ARMs were little more than "cheap rent" on a cool house, with a "possibility" of turning it into something more permanent, down the line..

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TahitiNut

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Tue Sep-23-08 01:44 PM
Response to Original message

12. Any ARM with negative amortization should be outlawed.

All ARMs should have a MAXIMUM permitted rate increase and the lender be forced to eat the loss if it isn't enough.

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