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Old 03-10-2011, 10:55 AM
 
Location: Albuquerque
5,548 posts, read 14,809,776 times
Reputation: 2731

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ARMs helped sink the economy - now they're back!
Article in CNNMoney.com

I love this headline. ARMs had nothing to do with it. It was not
putting enough down and/or taking "equity" out to spend it on stuff.

ARMs can and do make perfect sense for a lot of people.
At least the article goes into some detail on what they are good for.
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Old 03-10-2011, 11:30 AM
 
28,461 posts, read 76,326,507 times
Reputation: 18536
Completely agree - LOUSY headline, mostly decent ARTICLE.

Loans, by themselves, are almost impossible to be problematic -- it is the reckless lending standards that some firms were accepting and the complete lack of understanding that some borrowers engaged in...
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Old 03-11-2011, 11:36 AM
 
25,627 posts, read 32,748,207 times
Reputation: 23166
Loans dont kill the economy, people kill the economy. Much better headline IMHO.
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Old 03-11-2011, 12:32 PM
 
16,323 posts, read 14,379,371 times
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Quote:
Originally Posted by bulldogdad View Post
Loans dont kill the economy, people kill the economy. Much better headline IMHO.
Or even better headline " People reckless with ARMS killed the economy ".

I say that because some people might have had an ARM and utilized it well... I would never have did an ARM personally...

My RE friend said he had Option ARMS, and I said "What the heck is that ? " He explained it to me in detail and I decided back then to go with a 30yr. Fixed...

I think people wanted houses at any cost, whether they could afford them or not ( and in 2007 numerous friends bought houses for $ 350,000/ bubble state) / they only earned $ 15 an hour/ they were doing stated income loans and ARMS )
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Old 03-11-2011, 12:42 PM
 
85,974 posts, read 83,522,039 times
Reputation: 61738
Arms are fine.. in fact thats what would work out best for most of us. Considering statistically most folks sell within 5 to 7 years a fixed may spend thousands of dollars needlessly. What killed us was interest only mortgages and mortgages that shouldnt have been given out.
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Old 03-11-2011, 01:59 PM
 
Location: Albuquerque
5,548 posts, read 14,809,776 times
Reputation: 2731
Quote:
Originally Posted by WannaliveinGreenville
"People reckless with ARMS killed the economy".[/color]
I'd like another slight modification.

"Banks issuing people reckless ARMS killed the economy"
It doesn't matter how reckless the people are,
if a lender didn't issue the loan, there would have been no default.

I used an ARM in 2002 to lower my rate back then from 7.65% to 4.9%.
I took all the interest savings and used it to pay extra principle.

The idea was that no matter how much it re-set, I could refinance
later with a mortgage that would be about $10k less than otherwise.

Of course, in 2011 anyone paying more than 5.5% can't refinance their house no matter what.
The lenders have other things to do beside worrying about stuff like that.
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Old 03-11-2011, 02:12 PM
 
Location: Conejo Valley, CA
12,470 posts, read 18,224,433 times
Reputation: 4343
Quote:
Originally Posted by mortimer View Post
I love this headline. ARMs had nothing to do with it. It was not
putting enough down and/or taking "equity" out to spend it on stuff.
ARMs did in fact have something to do with it. Not so much standard ARMs, but IO and option pay ARMs. These are the products that enabled people to purchase more home then they could afford, the hope was that they could sell the house before the ARMs became fully amortizing loans.
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Old 03-11-2011, 03:43 PM
 
Location: Albuquerque
5,548 posts, read 14,809,776 times
Reputation: 2731
Quote:
Originally Posted by user_id
.... but IO and option pay ARMs. ...
My contention is that if someone used these types of loans along
with a 20% downpayment, they wouldn't have been a problem.

Even someone buying a conventional 30-year loan with nothing down is a
problem. I'm uncomfortable with the idea of permitting less than 10% down
unless the buyer has substantial assets and is just looking for leverage.

If you don't have the discipline to save a measly 10%, you have no
business committing to a mortgage.
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Old 03-11-2011, 03:56 PM
 
Location: Conejo Valley, CA
12,470 posts, read 18,224,433 times
Reputation: 4343
Quote:
Originally Posted by mortimer View Post
My contention is that if someone used these types of loans along
with a 20% downpayment, they wouldn't have been a problem.
Yes, and this contention isn't accurate. Low down-payments didn't cause people to purchase more house than they could handle, rather this was facilitated by loan products like option pay, IO, etc ARMS. These products allowed people to reduce their monthly payments - at times dramatically- the first few years at the expense of increasing them (beyond a 30-year fixed) in the future to make up for lost principle payments.

Also, pay option ARMs allowed for negative amortization so you could have started with 20% equity and ended with 0%.
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Old 03-11-2011, 10:10 PM
 
48,508 posts, read 88,694,730 times
Reputation: 18188
The big change will come form the government not gauaranteeing mortgages with taxpayers dollars really.30 year loans will not be looked a too favorably by investors.
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