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As soon as I saw the part you disagreed with, I knew instantly you're involved in mortgages...quel surprise !!! That being said, you, more than anyone, will be aware that the reason people take out ARM interest only loans is because it's easier to qualify for, they're thinking of the lowest payment possible because they can't afford a 30 year fixed or maybe not even qualify for it, and others do it thinking that by the time their ARM resets, they'll have built equity from rising house prices, which, since 2001 until late last year/this year, had a better return than the stock market, and sell their homes at a profit, thereby justifying the risks. But if you're right, why are mortgage foreclosures soaring over 50% this year so far over last year when interest rates are still very low and unemployment is stable?
This is not the place to start an argument and this is getting off subject so I will not continue on with this subject after this last post, as I will have to delete myself as argumentitive if I do hahahaha, but you are right shannon94, some LO's use these products for qualifiers and that, in my opinion is not right. The CA market in general boggles my mind! The fact that brokers allow that and that it is the norm scares me. It has come to that point that the house price tags are to such a high point that to qualify you can use borrowed money and these types of mortgages. Yes, I agree about CA, crazy!
As for the line MoMark said......"you, more than anyone, will be aware that the reason people take out ARM interest only loans is because it's easier to qualify for,"....... This is the part of your statement I am disagreeing with on a national level, places like CA,yes, but nationaly, no. These mortgages were not set up for this reason, they are for the financially savvy home owners that see and understand the sense in earning interest on equity, not for qualifying purposes, I agree with you, to use these for the sole reason to qualify to own a home, that is wrong. Those folks should buy less home if they qualify for less home, simple as that, but we are Americans, notorious for living far beyond our means. Doesn't make it right though.
I also disagree with you about these loans being more profitable for mortgage brokers, that is not so. Same fee as on a 30yr fixed, now Power Option Arms and MTA's, those are a little different and can tend to pay the broker a bit more, but there is also a lot more work involved with those so I believe that is justified.
Mo Mark also stated:
"With foreclosures soaring around the nation though interest rates remain at historically low levels, even coming down a bit in the last six weeks and resale houses flooding the market with prices coming down in some markets, some quite steeply...can you explain that?"
Hurricanes and extreme weather last year wich caused sky rocketing insurance costs and property tax rate increases in the hope of recovering from those weather related disasters in states like MS, LA, FL and CA and the fact that people can not afford to pay more a month for their escrows than their P&I payments. This has caused a mass of putting there house on the market at the same time and wanting to move out to lower housing cost areas of the country, or downsizing within there own state. That, in my opinion, is why there are so many more houses going into foreclosure and so many for sale. Take a look at these states forum posts on here. Many are saying these reasons as well as news reports from these states and nationally.
Interest rates came down in the last six weeks??? odd...Feds raised prime rate to 8.25% up .25% from the last time they met.
And yes, I did see where countrywide is laying off 10% of it's administrative and general office employees, I think that could be due the the hot refi market slowing so much due to the raise in Prime rate. but I could be wrong there, just my assumption on that one. I will post again when I see the real reason behind that. I use them a lot and am curious as to the reason also, but I will wait to read the press releases before I jump to a conclusion.
Mortgages and all personal finance issues are just that, personal. My point is, you can't blame one thing, such as the current available and popular mortgage products out there as the reason the real estate market isn't as strong as it was last year, there are many, many other factors involved in the different markets.
OK, how about we get back to the original subject on this thread? However, I did enjoy talking with you on this issue, thank you.
Who here thinks the house bubble will keep deflating?
Thanks for your replies! Positive reputation for all! You deserve it!
There is a bubble that is mostly global. All houses in America and in many parts of the world have shot way up in price. In the few places that didnt have a massive bubble, prices will countinue to appreciate 4-5% which is normal and healthy. Tennessee for example has tons of cheap sub $100k houses and enough sub $50k houses that the majority(over 50%) can afford a piece of the American dream. Therefore I am not supprised to expect slow, steady appreciation. In areas like south Florida(where I live) I am seeing house prices rapidly drop in value because only a very small percentage can afford one and the escalating hurricane insurance makes things even harder. People by the thousands are leaving Florida(especially the south) for greener grass on the other side. Florida is fine as a vacation place or if you are wealthy but for most of us, we have been priced out.
Many people buy more house than they can afford as well as take risky ARM morgages so they get in financial trouble, forclosed and ruin their credit and will be stuck renting for life.
Many people are bubble sitting, they are waiting for house prices to drop which could be 20%, 30%, possibily even 50%! I expect south Florida to be hit hard because of the hurricanes and insurance. NYC and south Cali may be hit quite hard but probably not to the extent of Florida because they dont have the hurricane and insurance problems and theres more higher paying jobs there.
Prices in California have dropped 50% in the past. I expect this to happen again. It just takes time and a lot of people are impatient!
What I find fascinating is the number of 20/30-somethings who have gone out and purchased 3+ homes as "investments." You know, the "flippers" who have learned how to do this via books and REI seminars. The same guys who used "stated income, no doc" exotic loans to qualify for, oh, several million dollars worth of real estate. I believe there is a lot of fraud involved in this latest real estate boom and only time will tell how that is going to all work out.
This is not the place to start an argument and this is getting off subject so I will not continue on with this subject after this last post, as I will have to delete myself as argumentitive if I do hahahaha, OK, how about we get back to the original subject on this thread? However, I did enjoy talking with you on this issue, thank you.
Who here thinks the house bubble will keep deflating?
I don't consider exchanging views in a professional and mature way "argument" mbmouse. But I do think that your replies to me required challenging with published facts, not to denigrate you, because I agree with so much you said, such as that ARMs were meant for higher end borrowers originally, however, the reality is much different now and this subject is absolutely about the housing bubble and if it will keep deflating, so we didn't in fact go off track as you suggested as this subject has everything to do with a deflating housing market. And... I enjoy talking with you on this issue too
OK, MoMark, I am glad you feel that way, and to anyone else who is reading, that you do not see this in anyway as an argument. I guess I get a little on the explaining side when it comes to my chosen profession that I love. We do get a bad rap because there are bad L.O's out there that do not explain to people how these different mortgages work and that causes a bad reputation for us all.
I want to clarify (for those reading too that might not understand these in any way) that there are two main, popular, types of adjustable rate mortgages, the typical 2/28, which is fixed for two years then adjusts once year or twice a year, has caps on both the adjustments within an annual period and a lifetime cap. This type of ARM comes in 2/28, 3/27 and a few others, these are based on Prime rate (see below)
There are also what is called an Option ARM, or Power Option ARM, these start out at a very low rate, know as a "teaser rate" and usually have an interest only option. When your monthly bill comes, you have 3 or 4 options (depending on what type of power option arm mortgage you get) which can include a minimum payment, interest only, interest plus some principle and a fully amortized amount (principle and interest) These are usually based on the Treasury index, or MTA (monthly Treasury average of the T bill) which is different from prime or LIBOR Indexes. (see below) These are the loans which can be very profitable to the financially savvy homeowners that want to invest their equity into high yield savings and actually pay off their home in less than 30 years, if done right, these can be used to pay off your home in about 15 years. THESE are the loans that should NOT be used to qualify and some bad loan officers use these, just like Mr. Steven Schneider said. These should not be used in a volatile market such as Fl and CA, unless the borrower is very qualified, financially savvy and has back up assets in case of such things as a hurricanes and huge property tax hikes and has the clear ability to refinance out of it at any time. This is the option arms the article you quoted from computerworld was talking about. These are the ones also being spoken about paying the LO more, and they are more time consuming to the LO (if they are doing their job right!) so I think that is justified.
There are also LIBOR Indexed ARM mortgages, which are normally called 3/1, 5/1 7/1 these are fixed for either 3. 5 or 7 years and adjust monthly (with caps) there after, again these can be used to qualify but only if there is a clear plan to refi and any mortgage loan officer worth there weight in salt, will do a refi for almost nothing to repeat clients.
As for the rates, there are several of them. Here are the rates that different mortgages are based on as of 10:00am Sept 22nd:
August: 10 Year Yield-4.930
September: 10 Year Yield- 4.88
August: 20 Year Yield- 5.13
September: 20 Year Yield-5.00
6 Month LIBOR-5.378
12 Month LIBOR-5.307
Prime-8.250
1 Year Tbill/CMT-5.020
The rate I believe you were referring to was the 12 month LIBOR when I was referring to the Prime rate. So we were both right.
Those mortgage rates that Frank Nothaft was speaking of was the average rates offered to borrowers. The 30 year fixed rate mortgage is still the most popular and most used mortgage and used as a determining factor in many articles as to the state of things in the mortgage world, it is very common to see it referred to. Just because prime rate (for example) is 8.250, some people can get a prime rate mortgage for 7.00% or even less due to there qualification status, Freddie Mac and Franny Mae (had to put the "r" in there so the system won't see it as a dirty word and ** it out hehehehe), which are conforming product analyzers, determine the eligibility of borrowers, that is what he was saying was the average over that period of time. It DOES get confusing, but that is why there are GOOD mortgage brokers out here, to know this stuff and weed out the rest and get the right loans for each borrower because not all loans are for everyone. So, has certain types of mortgages effected the housing market crisis in some sates? It does have a factor, sure, but I still do not believe it is the sole reason, or even the main reason, and yes, that is based on many industry reports and articles I have read and researched.
I hope I was able to explain all that so it would make a bit more sense????
And I hope all that are reading this now realize the importance of making sure you KNOW what type of mortgage you are being offered, to ask questions and to be sure to disclose all information truthfully to your loan officer, it does make a difference!
Prices in California have dropped 50% in the past. I expect this to happen again. It just takes time and a lot of people are impatient!
What I find fascinating is the number of 20/30-somethings who have gone out and purchased 3+ homes as "investments." You know, the "flippers" who have learned how to do this via books and REI seminars. The same guys who used "stated income, no doc" exotic loans to qualify for, oh, several million dollars worth of real estate. I believe there is a lot of fraud involved in this latest real estate boom and only time will tell how that is going to all work out.
im not sure if they will drop that much, if it did, it would be priced equal or less than parts of south Florida and north NJ and because jobs pay alot more in Cali and also Cali has better weather and lots of things to do, millions will move there. I can see a 25% drop tops.
Prices have definately dropped. I searched for houses in my city and prices are about 12% lower then they were at the peak. I am finding that you can get correctly priced houses in the $160-180 per square feet. The $200 a square feet houses are either overpriced, seller needs to reduce asking price or they are in an expensive location, have larger lots or the house is very nice. Prices will drop some more, easing the affordability crisis. Hopefully hurricane insurance stops rising or houses will have to keep dropping in price. Many people are bubble sitting, waiting for prices to drop some more. The experts predict a 30% drop from the peak so what used to be $300k for your typical 3 bedroom 1500 square foot house will become $210k! Expect to start finding plenty of $150 a square foot properties in the next year. Once prices finish dropping, they will remain flat for a few years then rise at or slightly above the rate of inflation, a healthy rate of appreciation. Prices havent finished correcting themselves yet, but some correction has already taken place.
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!!! That being said, you, more than anyone, will be aware that the reason people take out ARM interest only loans is because it's easier to qualify for, they're thinking of the lowest payment possible because they can't afford a 30 year fixed or maybe not even qualify for it, and others do it thinking that by the time their ARM resets, they'll have built equity from rising house prices, which, since 2001 until late last year/this year, had a better return than the stock market, and sell their homes at a profit, thereby justifying the risks. But if you're right, why are mortgage foreclosures soaring over 50% this year so far over last year when interest rates are still very low and unemployment is stable? 
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mbmouse
