Ahahah, every once in a while it pays to run with the masses (of stupidity). Read the details on this deal… it doesn’t help speculators (people who didn’t live in the house) and it doesn’t help people who are already late on payments.
“I bought a house in CA for $820,000. It’s nice but very expensive. I had no money to put down but I was told my monthly payment will be $800/month, which is difficult for me but I think I can make it. I got mail 3 weeks ago saying my payment will go up to $5,400 / month starting in Febuary of 2008. I hear now Bush will keep my monthly payment at $800/month. That’s very nice of him, now I don’t have to get a job or move. thank you. I don’t know how I could ever back to renting, that’s for the fresh illegals, not for me who’s love USofA since coming here 2 years ago.” Going to California, Led Zepplin Willy
virginCFAhooker Wrote: ------------------------------------------------------- > Ahahah, every once in a while it pays to run with > the masses (of stupidity). > > Read the details on this deal… it doesn’t help > speculators (people who didn’t live in the house) > and it doesn’t help people who are already late on > payments. Do you know the average life/typical amm schedule for sub-prime loans. I realize there’s a wide range, but they can’t all be full IO for the whole term…
i’m trying to wrap my head around this. maybe you guys can help me out a little. the more i read about it, the more questions i have. “The plan allows those borrowers who took out subprime mortgages between Jan. 1, 2005, and July 31, 2007, to pursue one of the following options: refinance to a new mortgage, switch to loan insured by the FHA, or freeze their “teaser” rate for five years.” I understand (now) that the g’vt isnt fronting the money, but i’m still not sure how this is supposed to work exactly. refinance to a new mortgage - Does this mean that they refinance with their existing mortgage lender? Do they specify what kind of mortgage it would have to be (traditional fixed 30 yr mortgage) and would the rates/payments be higher? if these borrowers can’t afford higher payments, then how does this option help? switch to loan insured by the FHA- do the terms of the loans change or are they still ARMs? again, if the payments are higher, this might not really help the borrowers? and assuming it does not, then this is more of a g’vt bail out cause its going to be g’vt $$… right? freeze their “teaser” rate for five years- Do we expect a similar “bailout” plan 5 yrs down the road? it seems to be in the best interest of the mortgage lenders to do what they can to keep these people in their houses and making what payments they can make, but i’m not so sure this really solves the problem in the long run.
nolabird032 Wrote: ------------------------------------------------------- > Delinquent loans increase financial pressure on > servicers because they still have to make payments > to investors, as well as tax payments to local > governments, according to Canfield. > > http://money.cnn.com/2007/12/06/real_estate/Bush_p > lan_is_limited/index.htm?postversion=2007120614 > > > > i dont get this? maybe i should read the article > again. but how is it increased financial pressure > if they are using money from the gov’t to fund the > difference in payments? No government money is going to fund this. All this is is an agreement between servicer/sellers and some investors to voluntarily take a reduction in spread. This better reduce defaults, or all you are going to have in 5 years is a massively crappy concentrated pool with a lot less excess spread to make up for a defaults. Personally, as a guy who works in structured finance (nowhere near RMBS though) I think this is a horrible idea. F’ing with the financial markets for political gain does nothing. All this is is a lame-duck president trying to improve his tarnished legacy image, a former streeter trying to help his buddies’ bonuses out, and other politicians trying to put lipstick on a pig to get re-elected.
yeah… I did some more reading on it this morning. my bad… probably not the best article to try to understand what this plan is all about. Is there a general consensus that most subprime borrowers are going to take the 5 year rate freeze over refinancing?
MFE what was ur payment plan? 999 years? I wonder. And have you heard of the saying champagne taste on a beer budget? your case is a little worse than that.
Just for reference I pay 1000 for a 1000 sf condo… Before condo fees. WTF??
nolabird032 Wrote: ------------------------------------------------------- > yeah… I did some more reading on it this > morning. my bad… probably not the best article > to try to understand what this plan is all about. > > > Is there a general consensus that most subprime > borrowers are going to take the 5 year rate freeze > over refinancing? Assuming you pay down some principal and aren’t all IO (or worse) for the next five years, it seems to me that this would be an incredibly good offer for a Borrower. The thing about this whole thing though, and I’d imagine speirce will agree with me, is that this won’t have an extremely positive effect on demand for structured products in general, which is, arguably, the heart of the credit crunch… I guess we’ll see though.
Thats a good point. I’m not actually sure how much principal a typical ARM pays/month. I’ve never really seen an amortization schedule for anything other than a traditional fixed rate mortgage and I assumed it was very minimal. I guess it would have to be gradually increasing just like a fixed rate amort schedule. I was making the assumption that if borrowers decided to refinance and the mortgage lenders began issuing new RMBS, it would just add pressure in a market that is already strained with low liquidity… potentially making the problem worse, not better? but i have no idea. Or perhaps, the mortgage lenders wouldnt be reselling them at all and would just have to keep them on their own books? For the borrowers that would be obtaining loans guaranteed by the FHA (if there are any), do you take this as a more direct gov’t bail out or are the original mortgage lenders still on the hook somehow? Also, what about those mortgages with pre-payment penelties? ((sorry if these are silly/elementary questions.))
nolabird032 Wrote: ------------------------------------------------------- > Thats a good point. I’m not actually sure how much > principal a typical ARM pays/month. I’ve never > really seen an amortization schedule for anything > other than a traditional fixed rate mortgage and I > assumed it was very minimal. I guess it would have > to be gradually increasing just like a fixed rate > amort schedule. > > I was making the assumption that if borrowers > decided to refinance and the mortgage lenders > began issuing new RMBS, it would just add pressure > in a market that is already strained with low > liquidity… potentially making the problem worse, > not better? but i have no idea. Or perhaps, the > mortgage lenders wouldnt be reselling them at all > and would just have to keep them on their own > books? For the borrowers that would be obtaining > loans guaranteed by the FHA (if there are any), do > you take this as a more direct gov’t bail out or > are the original mortgage lenders still on the > hook somehow? Also, what about those mortgages > with pre-payment penelties? > > ((sorry if these are silly/elementary questions.)) An ARM is just like a fixed rate until reset. When it resets, and int rates are higher, then payments obviously goes up but the principal amount actually is less then the last fixed payment. you can easily create an amortization schedule in excel and see this. do a 5/25 at fixed 5% on $500K then reset @ 9% with n=300 remaining. At month 60 (last fixed payment) you are paying 767 on principal on $2684/month mortgage. on month 61 you are paying 410 on principal on $3853/month mortgage.
doworkson Wrote: ------------------------------------------------------- > Just for reference I pay 1000 for a 1000 sf > condo… Before condo fees. > > WTF?? thats pretty cheap, where do you live?
There i go, trying to make things complicated. Thats really easy. Anyhow, lets say that this plan never came into existance… and the ARMs had to be paid using their current terms/conditions. I understand that the teaser rates were fixed at a low interest rate for X number of years, but after they are reset, does that mean it is calculated as a fixed rate for the reminder of the mortgage or every payment is going to be calculated based on the mortgage rate for that month (reset monthly)?
nolabird032 Wrote: ------------------------------------------------------- > There i go, trying to make things complicated. > Thats really easy. > > Anyhow, lets say that this plan never came into > existance… and the ARMs had to be paid using > their current terms/conditions. I understand that > the teaser rates were fixed at a low interest rate > for X number of years, but after they are reset, > does that mean it is calculated as a fixed rate > for the reminder of the mortgage or every payment > is going to be calculated based on the mortgage > rate for that month (reset monthly)? typically it’s reset quarterly and can be off of 1,3,12 month Libor rates at a specific date (ie 5% + 1 month Libor reset quartely on close of 12/31, 3/31, 6/30, 9/30 of every year).
Another point about so called “teaser rates”. Teaser rates were mainly used by speculators (house flippers) b/c they have very low mortgage payments while they fix up the home and try and sell at appreciated value in 6-18 months. The other individuals that took on so called teaser rates were the uneducated/bad credit that probably could never had afforded the house in the first place. So I think it’s odd that the politician’s use the “american dream” b/s when it REALLY was a DREAM in the first place, these houses never should have been a reality for these subprime borrowers in the first place.
i understand the original idea behind the teaser rates/IO mortgages, just not the specifics… or at least i think i do 
maybe you can explain this to me… What about the subprime mortgages with prepayment penalties? That just sounds sketchy to me. Mortgage lenders trying to trap uneducated borrowers into a loan. Or am I missing something?
nolabird032 Wrote: ------------------------------------------------------- > i understand the original idea behind the teaser > rates/IO mortgages, just not the specifics… or > at least i think i do > > maybe you can explain this to me… > What about the subprime mortgages with prepayment > penalties? That just sounds sketchy to me. > Mortgage lenders trying to trap uneducated > borrowers into a loan. Or am I missing something? i’m no expert on SIV’s but this is probably the reason they have this prepayment penalty. In the event of a prepayment, the servicer of the CMO’s must find an equilivent loan to replace the prepaid loan. With convential borrowers, they are abundant, and collateral does not play as big a part. But with the subprime it takes more research into the credit issues of the borrower, the collateral is a much bigger deal, the location, (including economics of the area, etc) must all be researched.
really interesting. I would’ve never thought about that. Thanks MFE.