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NewYorkChris
Cherry Bomb


Joined: 13 May 2007
Posts: 105
Location: Texas

Re: What Does Rate Cut mean for Housing?
PostPosted: Tue Jan 22, 2008 10:53 pm Reply with quoteBack to top

buyerbeware wrote:
miweiser wrote:
BDC?

Anyone agree that the ARM resets will now be milder than previously thought?

Reducing the potential foreclosures later this year?

Please discuss...


The POA-NegAm'ers can't be saved unless index falls to a level where rate adjustment equals something close to what the teaser rates are. LIBOR is at 3.084 today so, combined with a margin of 2.5, the reset rate is quite a bit higher than the teaser rate on a higher loan amount.

Lower short term rates are good news for more garden variety 3/1 ARMS set to adjust. Start rate on that type of ARM is probably higher than what the first adjustment will be; payments could actually go down for some people.


If you’re talking about subprime arms the margin rate is probably closer to 5 than 2.5. Libor + 5 or CMT + 5 is a more realistic formula. Regardless of 3/27 or 2/28 the reset will be less painful for buyers, but reset on the loan is also important, if your loan resets once a year and it reset 2 months (12/07) ago, rate cuts will not have any effect until your next reset (12/08 ). Also, if your loan is at 9.5% and they do take rates down to 1%, new formula, libor 1% + 5 = 6%. It would take multiple resets on your loan to reach that level with a 1% rate change cap.

Example, 9.5% resets 12/08 to 8.5%, resets 12/09 to 7.5%, resets 12/10 to 6.5% then finally 12/11 resets to 6%.

To add insult to injury, most of these loans have floors, which state the loan can not reset below a certain point. Which means the formula may allow a reset, but the floor may eliminate the possibility.

For most of these people the rate change does nothing, the borrowers went stated we all know where those programs are today. All of this talk is irrelevant, home prices need to drop and realign with families income until that happens they can lower rates to 0, Joe Mainstreet doesn’t qualify for his Mc Mansion outside of the liar loan.

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Strouper2
Schumpeter Reincarnate


Joined: 12 Jul 2007
Posts: 2563
Location: Florence, KY

Re: What Does Rate Cut mean for Housing?
PostPosted: Wed Jan 23, 2008 4:39 am Reply with quoteBack to top

NewYorkChris said:
Quote:
To add insult to injury, most of these loans have floors, which state the loan can not reset below a certain point. Which means the formula may allow a reset, but the floor may eliminate the possibility.


Yes and most of the floors are the same rate that these people started at so most sub-prime loans can only go one way and that's UP. This is really becoming less important seeming that many borrowers (especially sub-prime ones) are starting to have problems even before their loan starts to adjust. All the adjusting does is put the icing on the cake and gives that person an even better reason to give up. In my opinion most of these borrowers are going to be screwed when they don't have some other type of sub-prime loan to refinance into.

Strouper
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