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Everyone needs to get out of the business of knowing what is best for everyone else. An ARM isn't for everyone but that doesn't make ALL ARMs bad. If one lends and borrows irresponsibly, it's a bad risk whether it's a fixed rate or an adjustable.
An ARM can be a good tool to a responsible borrower who is qualified and knows what he/she is doing.
All loans are risky, and buying a home is risky, with a fixed rate or adjustable. Certainly some circumstances are of higher risk, and they are usually the ones with higher "payoff". The problem with ARMs and the credit crisis was that people were allowed to accept more risk than they could bear.
You know, there are people who CAN afford to pay an 11% mortgage if plans change and they have to. Everyone who has an ARM isn't someone who can't afford the fixed rate and stretched themselves. Some people like to maximize profit. Sometimes you win and sometimes you lose, just like most investments. Saying one should always stay away from an ARM is like saying one should NEVER invest in any market, but rather store all reserves under a mattress. And before someone responds that you'd not have a tanked portfolio if you stored your money under your mattress, there IS a risk there to, and it's not theft. It's called INFLATION.
Everyone needs to get out of the business of knowing what is best for everyone else. An ARM isn't for everyone but that doesn't make ALL ARMs bad. If one lends and borrows irresponsibly, it's a bad risk whether it's a fixed rate or an adjustable.
An ARM can be a good tool to a responsible borrower who is qualified and knows what he/she is doing.
All loans are risky, and buying a home is risky, with a fixed rate or adjustable. Certainly some circumstances are of higher risk, and they are usually the ones with higher "payoff". The problem with ARMs and the credit crisis was that people were allowed to accept more risk than they could bear.
You know, there are people who CAN afford to pay an 11% mortgage if plans change and they have to. Everyone who has an ARM isn't someone who can't afford the fixed rate and stretched themselves. Some people like to maximize profit. Sometimes you win and sometimes you lose, just like most investments. Saying one should always stay away from an ARM is like saying one should NEVER invest in any market, but rather store all reserves under a mattress. And before someone responds that you'd not have a tanked portfolio if you stored your money under your mattress, there IS a risk there to, and it's not theft. It's called INFLATION.
Right-o!
Some folks manage money very well.
Some work hard at it and do a little less well.
And some let money mismanagement define their lives.
Everyone needs to get out of the business of knowing what is best for everyone else. An ARM isn't for everyone but that doesn't make ALL ARMs bad. If one lends and borrows irresponsibly, it's a bad risk whether it's a fixed rate or an adjustable.
An ARM can be a good tool to a responsible borrower who is qualified and knows what he/she is doing.
To a point you could be correct, but here is where the logic falls apart. When you have all the idiotic people that CAN'T manage their finances well or get in over their head or lose a job or have a health issue or the interest rates skyrocket or home values fall, it is YOU and I that have to pay for it. If it just affected the moron that was stupid enough to take out an ARM mortgage, I would say no problem and let the idiot crash and burn. Unfortunately, it doesn't happen that way. Have you paid attention to the trillions and trillions of dollars were are paying out and guaranteeing to cover this mess? It is YOU, ME and all the other RESPONSIBLE people that have to pay the price for this. Therefore it IS my business to speak up about this completely idiotic loan option.
Quote:
Originally Posted by MikeJaquish
Right-o!
Some folks manage money very well.
Some work hard at it and do a little less well. And some let money mismanagement define their lives.
And it is you, me and especially our innocent children that will be paying the price for those that mismanaged their money with these stupid loans. Being that you are a Realtor, I wouldn't expect you to expose the dangers of an ARM. It is in your best interest for people to buy a home in any way or fashion they can. I praise Vicki for speaking the truth. Someone needs to.
To a point you could be correct, but here is where the logic falls apart. When you have all the idiotic people that CAN'T manage their finances well or get in over their head or lose a job or have a health issue or the interest rates skyrocket or home values fall, it is YOU and I that have to pay for it. If it just affected the moron that was stupid enough to take out an ARM mortgage, I would say no problem and let the idiot crash and burn. Unfortunately, it doesn't happen that way. Have you paid attention to the trillions and trillions of dollars were are paying out and guaranteeing to cover this mess? It is YOU, ME and all the other RESPONSIBLE people that have to pay the price for this. Therefore it IS my business to speak up about this completely idiotic loan option.
Do you think that EVERYONE facing foreclosure today has an ARM? If just one of those people had a regular plain vanilla 30-year fixed mortgage then that means that NO ONE should own a house unless they can pay cash! That certainly would eliminate the whole housing crisis, wouldn't it?
ARM's are awful programs designed for completely foolish people. They should pass a law stating that if you are stupid enough to choose an ARM, then you have to give up your first, second and third born if you default.
Well then I must be among the stupid, because I currently have a 7/1 jumbo ARM. By choosing that over a 30-year fixed when I bought my house a couple of years ago, I saved more than a point in interest rate. And I know that it's a near certainty that within 7 years of when I bought the house, I will have either moved or refinanced. But in the meantime I will have saved a boatload on interest. How stupid of me.
And to show you how idiotic I am, I once took out a 5/30 balloon mortgage - in which 100% of the principal was due after 5 years. I stupidly took a really low interest rate on that house knowing that I was in a temporary assignment and would be moving away in 2 years.
Do you think that EVERYONE facing foreclosure today has an ARM? If just one of those people had a regular plain vanilla 30-year fixed mortgage then that means that NO ONE should own a house unless they can pay cash! That certainly would eliminate the whole housing crisis, wouldn't it?
Not everyone did, but it is no small percentage. Then you can add the stupid CRA of the 70's, which opened up the doors to relaxing lending standards for ALL people and the freakin' thing snowballed. The answer is simple and crystal clear. These simple rules need to be put in place:
All loans must be fixed rate, so there is no possibility of a surprise jump in interest rates
Banks cannot sell loans. They must hold what they approve. This will make them think twice about approving questionable buyers
The government should no longer force banks to loan in any area for any reason. No more scoring banks based on where they lend and restricting their growth based on the score
All employment & income MUST be documented & verified
We no longer bail banks out. They survive or fail based on their own decisions going forward
Basic rules that will help ensure responsible lending, but don't need over-regulation. And guess what? SOME people just won't be able to buy a home. Big WHOOP!
Last edited by Charlton Dude; 02-21-2009 at 07:07 AM..
Well then I must be among the stupid, because I currently have a 7/1 jumbo ARM. By choosing that over a 30-year fixed when I bought my house a couple of years ago, I saved more than a point in interest rate. And I know that it's a near certainty that within 7 years of when I bought the house, I will have either moved or refinanced.
So you and everyone in your situation KNOWS that your home won't lose value, you won't be upside down, you won't lose your job, you won't get injured and you won't get sick. You KNOW 100% that you can get out from under the GUARANTEED rate increases that you WILL be experiencing if you don't get out quick enough.
While we can pick and choose anyone who it did work out for, the numbers show that those who did not are now killing us. Sorry, but the facts are the facts. I made a killing on the house I sold in the Northeast. It doubled in value in 4 years. I made out great. Does that mean that should be the standard for everyone and they can all expect and bank on that? I think not.
We are where we are now because ENOUGH people were NOT responsible and as a result, I have to pay for it. Their bad decisions and greed is now coming out of MY wallet.
Last edited by Charlton Dude; 02-21-2009 at 07:08 AM..
So you and everyone in your situation KNOWS that your home won't lose value, you won't be upside down, you won't lose your job, you won't get injured and you won't get sick. You KNOW 100% that you can get out from under the GUARANTEED rate increases that you WILL be experiencing if you don't get out quick enough.
While we can pick and choose anyone who it did work out for, the numbers show that those who did not are now killing us. Sorry, but the facts are the facts. I made a killing on the house I sold in the Northeast. It doubled in value in 4 years. I made out great. Does that mean that should be the standard for everyone and they can all expect and bank on that? I think not.
I knew that I could afford any rate increase that might happen - in fact several years worth of increases. I knew that if I lost my job, my wife's income was still enough to pay the mortgage. I knew that I had long term disability coverage in case I couldn't work. I knew that worst-case-scenario, I had enough investments that I could pay off the house if I had to.
The point you seem to keep missing is that a "one-size" fits all answer to mortgages does not, in fact, fit everyone.
All loans must be fixed rate, so there is no possible of a surprise jump in interest rates
Banks cannot sell loans. They must hold what they approve. This will make them think twice about approving questionable buyers
The government should no longer force banks to loan in any area for any reason. No more scoring banks based on where they lend and restricting their growth based on the score
All employment & income MUST be documented & verified
We no longer bail banks out. They survive or fail based on their own decisions going forward
Interesting economic theory. Some questions:
What happens when the cost of money in the banking system rises, and our financial markets are stuck in unprofitable situations because 100% of their mortgage portfolios are held in fixed interest receivables?
What happens when the mortgage market becomes illiquid because lenders can no longer package and sell loans to raise additional capital for further lending?
On bailing out banks - you favor eliminating the FDIC then, and removing the "insurance" we all have on our deposits? (Which is used to "bail out" banks)?
So you and everyone in your situation KNOWS that your home won't lose value, you won't be upside down, you won't lose your job, you won't get injured and you won't get sick. You KNOW 100% that you can get out from under the GUARANTEED rate increases that you WILL be experiencing if you don't get out quick enough.
While we can pick and choose anyone who it did work out for, the numbers show that those who did not are now killing us.
Ummm, you can have your home lose value, you can be upside down, you can lose your job, you can get injured, you can get sick and be in a boatload of trouble even if you purchase your house with a fixed-rate mortgage. These are all risks of purchasing an asset using substantial debt, not just the risk of purchasing an asset with variable-rate debt.
The only way to eliminate those risks is to rent, not own.
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