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October 25, 2005
More Option ARMs and Alt-A Loans
Yo, yo, yo. Americans' mortgage choices are getting riskier and riskier. A few minutes ago the Mortgage Bankers Association announced the results of a survey of borrowers from the first half of 2005. (A little old, but I guess it takes awhile to compile the numbers.)
Ordinary ARM loans, which are riskier than fixed-rate loans, apparently aren't risky enough for many borrowers. The MBA says that their market share fell from 46% in the second half of 2004 to 36% in the first half of 2005. Why? Partly, it seems, because more people chose option ARMs. Those, of course, are specialty ARMs that give you the option to pay even less than the monthly interest you owe. The unpaid interest gets added onto your principal (negative amortization). Option ARMs climbed from 17% to 23% of first-mortgage originations.
Then there are alt-A loans--the ones you get when you don't submit all the documentation that would be required to qualify for a straight loan. Those are usually chosen by people who have unsteady sources of income--or simply have too little documented income to qualify for a straight loan for the house they want to buy. The MBA says alt-A loans' share rose from 8% to 11%.
The mortgage bankers' press release contains a quote from their chief economist, Douglas Duncan: " ... borrowers need to be vigilant to ensure that they prudently measure and manage the additional risk of these new products."
Ain't that the truth.
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Please be kind enough to yourself and look at the facts:
1) The average person lives in their home for only 6 years according to the National Association of Realtors. During that time a person only pays less than 8% to the principal and a whopping 92+% to interest. Of course the Mortgage Bankers Association does like this loan; they want EVERYONE paying the largest amount of compounded interest money to the bank instead of putting it into a personal retirement account earning compounded interest.
2) When a person applies the monthly savings to a personal retirement account earning compounded interest, over the years, this will yield them hundreds of thousands of dollars when the program is managed by professionals.
3) A penny doubled every day for 30 days is $1,000,000. We all heard that when we were children. Well banks use that 'formula' to get wealthy, SO WE SHOULD TOO!
4) Read the book Missed Fortune 101 and go to my website. You can see all the facts in writing yourself.
Thanks for reading this and click above on the words 'Option Mortgage' to see more.
Posted by: Option Mortgage at January 6, 2006 11:18 PM
Please be kind to your readers and avoid the senseless use of slang.
Posted by: reader at December 6, 2006 02:22 PM
Q: How do you sell a house when you can no longer afford payments and owe more than it is worth?
Q: What happens when subprime mortgages are no longer offered?
Posted by: what at May 3, 2007 04:45 PM