It’s Not All Subprime. Pay Option ARM’s – California’s Billion Pound Gorilla

That’s funny (previous comment) I believe I’ve seen fake boobs and people lacking character in all the states I’ve been to in the last 20 yrs. Besides plenty of good people too. It’s all in your perspective.

As far as neg-ams in Cali, yes I have one , yes I’m a hard working single mom trying to achieve the American dream. No I don’t want to walk on my loan; but when I called American Home Mortgage in July of ’07 and told them…when this time bomb resets it will explode, can we work on a loan mod. Their answer was “no, you’re current on your mortgage”.
According to the various people I spoke with at American Home Mortgage in order to get any loan mod…etc. one has to be behind 60-90 days.
My answer to that was, if I’m that behind on my loan payment and my credit is getting destroyed what incentive would I have to work things out. I’d rather take it all the way down to the NOD and let’s keep going to the foreclosure.

That is not the road I took. I have had my house on the market since then with not 1 offer and reducing the price every 25-30 days. I will be contacting the bank for a short sale in Feb. since the amount the sale will bring including selling costs will be under what my loans are for.

I am prepared to go to 1) short sale (better) 2) foreclosure and bk (not good) or 3) deed in lieu (ok)

I will not be insulted by people’s comments on the character of people that take out certain types of loans; you have not walked a day in my shoes and you have no idea how my life is.

I do know Moe is correct in saying this is yet to explode for California…my loan won’t reach the 110% til June of ’08. Hopefully the house will have sold but if not it’s on to choice #2 or 3. And yes when I think of losing the home we’ve had for almost 4 years, it hurts my heart. But I have to be practical…since I wasn’t with this loan (thought I could refi this past summer) I know there are long term effects from this and that’s ok too.

I love reading the success stories on Moe’s website, I first came looking for hope for my situation. He has great advice for many people. I’ve been researching my brains out to find a constructive way out of this situation. There are many websites dealing with short sales too and that helps.

I just noticed today on realtytrac that the owner of my old beach cottage had an NOD filed on the property. I feel for all the homeowners that are being destroyed by the Wall St. PONZI scheme. Remember those; the people at the top (originators) make a killing and the people at the bottom are left holding the bag.

Have a great 2008…much is in store for the economy in the US and California.

Love your family and take care of your health because those are the most important commodities we have…..

Here’s a link to a list of lenders loss-mitigation department phone numbers I came across today:

http://www.homeloanlearningcenter.com/ForeclosurePreventContactInfo.htm

Moe, I’m so glad you took the time out to write this very detail, informative article. Know what I found out over the holidays?

Every one of my brother’s and sisters has a Pay OPtion ARM. Now, I’m in New York and they’re in Jersey, but they facing the same high payment woes.

My sister spoke about a friend of hers who is facing the same trouble.

IMO, these Pay Option ARMs were designed to fail the average American homeowner, and they are failing them. I see this crisis deepening in ’08. It’s like a hurricane. They’ll be calm in the eye of the storm, and then when these ARMs start exploding, disaster.

BANKING

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF BANKING

General Provisions

State Bank and Savings Bank Parity

Proposed Repeal and New Rule: N.J.A.C. 3:6-12.1

Proposed Repeals: N.J.A.C. 3:6-12.2 and 12.3

Authorized by: Holly C. Bakke, Commissioner, Department of Banking and Insurance

Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:9A-24b.1

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2002-150

Submit comments by June 14, 2002 to:

Karen Garfing, Assistant Commissioner

Regulatory Affairs

New Jersey Department of Banking and Insurance

P.O. Box 325

Trenton, NJ 08625-0325

Fax: (609) 292-0896

Email: Legsregs@dobi.state.nj.us

The agency proposal follows:

Summary

The Department of Banking and Insurance (“Department”) proposes to amend N.J.A.C. 3:6-12.1 to implement the new parity provisions enacted in P.L. 2000, c. 69, § 3 (known as the “Parity Act”), and codified at N.J.S.A. 17:9A-24b.1. The grant of parity contained in the statutory amendment involves powers, rights, benefits and privileges that are possessed by Federal or out-of-State chartered financial institutions. The Department has carefully reviewed the underlying policy decisions that have led to the current regulatory system and the series of laws enacted by the Legislature to protect consumers and maintain the safety and soundness of New Jersey State chartered banks and savings banks.

After careful review and consideration, the Department has concluded that the grant of parity was not intended to free New Jersey banks and savings banks from operating within the general regulatory structure that currently exists through the Department. The Department has also concluded that the grant of parity by the Legislature was not intended to repeal by implication important New Jersey State consumer protection laws, such as usury laws.

Consistent with the Parity Act, the rule proposed for repeal and new rule address both New Jersey State chartered bank and savings bank parity with Federally chartered and out-of-State banks, savings banks, and savings associations. Any such power must be exercised upon the same terms and subject to the same conditions as are authorized for Federally chartered or out-of-State banks, savings banks, and savings associations. To exercise a power, right, benefit, or privilege afforded to an out-of-State bank, savings bank, or savings association, the exercise of which the Commissioner of the Department of Banking and Insurance (“Commissioner”) has not previously approved by rule, banks and savings banks will be required to submit a notice of intent to the Department, supported by information specified in the new rule, which the Commissioner may, within 45 days, approve, disapprove, or condition on safety and soundness grounds or on other grounds established in the new rule.

The proposed new rule makes it clear that certain areas of this State’s regulation of banks and savings banks are not included in the scope of application of the Parity Act. These proposed limitations apply to both Federal and out-of-State powers, rights, benefits, and privileges. The Department notes, for example, that some national banks operating in New Jersey have claimed that they are exempt from the requirement of offering consumer checking accounts established in N.J.S.A. 17:16N-1 et seq. Consumer checking accounts are low cost personal checking accounts that require only minimal amounts of money to open and maintain. The accounts provide a substantial benefit to young, low income, and elderly people. The Department does not believe that the Legislature intended to permit New Jersey State chartered banks and savings banks to use parity to avoid their responsibilities to comply with this or certain other consumer protection laws. Accordingly, in the proposed new rule, the Department has identified the type of consumer protection laws and administrative rules that shall not be subject to parity. The Department views these proposed limitations on the exercise of parity as reasonable and necessary generally to discharge the Commissioner’s statutory responsibility to promulgate rules for the appropriate regulation of institutions within the Department’s jurisdiction. In addition, the new rule implements the legislative authorization to promulgate rules with the objective of achieving substantially competitive parity, while preserving the existing framework of the dual banking system, which there is no evident intent to disrupt, especially with respect to consumer protections enacted by the Legislature over many years.

The limitations also serve to establish grounds for disapproving a notice of intent, in accordance with rulemaking authority specifically granted in the Parity Act.

The application of the proposed new rule to N.J.A.C. 3:6-12.1 to both banks and savings banks would make unnecessary the provisions set forth in recently readopted N.J.A.C. 3:6-12.2 and 12.3 (see 33 N.J.R. 2079 June 18, 2001), and those sections are, therefore, proposed for repeal.

The Department believes that the limitations on parity set forth in the proposed rule are consistent not only with legislative intent, but also with provisions of Federal law, including the 1999 Gramm-Leach-Bliley Act which reconfirmed the principle of functional regulation of certain activities traditionally regulated by the states. The Department welcomes public comment on these provisions of the proposed new rule so that the final rule adopted will provide the appropriate balance between the grant of powers under the Parity Act and reasonable restrictions on their exercise, consistent with applicable state laws for the protection of consumers and the administration of the Department’s regulatory responsibilities.

A 60 day comment period is provided in this notice of proposal and, therefore, pursuant to N.J.A.C. 1:30-2.2(a)5, the notice is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

Social Impact

The proposed new rule and repeals would apply to all New Jersey chartered banks and savings banks, assuring them substantially competitive parity with their Federal and out-of-State counterparts. The proposed new rule will permit the Department to continue to require banks and savings banks to adhere to safe and sound banking practices and key consumer protections, while enjoying such substantially competitive parity. The new rule and repeals therefore, should have a beneficial social impact on the industry and consumers. Consumer reaction is expected to be positive.

Economic Impact

The Department expects that the ability to exercise powers, rights, benefits, and privileges authorized now or in the future for Federal or out-of-State institutions will have a positive economic impact. Banks and savings banks will be able to offer services and products that may not be specifically authorized by applicable New Jersey statutes and rules, but which may enable banks and savings banks to increase their business, their market share and, therefore, their profitability and competitiveness with their Federal and out-of-State counterparts.

Banks and savings banks that seek to exercise parity with out-of-State institutions will incur costs in order to submit a notice of intent with the required supporting information. The Department expects that associated administrative costs will be marginal. Consumers should benefit economically from resulting increases in service and product options and marketplace competition.

Federal Standards Analysis

Banks and savings banks may, in the future, become subject to Federal standards pursuant to a proper exercise of parity in accordance with the proposed new rule and repeals. While the Federal standards applicable in such cases cannot be identified at this time, there will be no applicable State standards that may exceed them because parity with Federal institutions entails application of the pertinent Federal standards.

The proposed new rule, however, also removes certain State statutory and regulatory consumer protections from the scope of parity. In some cases, these limitations may exceed Federal standards applicable to Federally chartered banks, savings banks, and savings associations, in the sense that the limitations may restrict New Jersey banks and savings banks from certain types or levels of activity in which their Federal counterparts may conceivably be permitted to engage at present or in the future. Notwithstanding the proposed limitations, under parity, banks and savings banks should soon be able to offer services and products not specifically authorized by applicable New Jersey statutes and rules, and reap the resulting economic benefits.

As a matter of policy, however, the Department views the proposed limitations as reasonable and necessary generally to discharge the Commissioner’s statutory responsibility to promulgate rules for the appropriate regulation of banks and savings banks, and specifically to implement the legislative authorization in the Parity Act to promulgate rules with the objective of achieving substantially competitive parity while preserving the existing framework of the dual banking system, which there is no evident intent to disrupt, especially with respect to consumer protections ratified by the Legislature over many years. The costs that may result from promulgating the proposed limitations are speculative at best. Such costs, even if realized, are outweighed by the solid benefits afforded to New Jersey consumers by, for example, the continued viability of laws addressing consumer checking accounts, criminal usury, mortgage loan prepayment penalties, medical and financial records privacy, and the safety and soundness of state-chartered banks and savings banks. In addition, the Department sees no technological obstacle to the regulated industry’s continued compliance with these limitations.

Jobs Impact

The Department does not anticipate that any jobs will be lost as a result of the proposed new rule and repeals. If banks or savings banks increase their business or market share as a result of the parity permitted by the proposed new rule, additional jobs may be generated.

The Department invites commenters to submit any data or studies concerning the jobs impact of the proposed new rule and repeals together with their written comments on other aspects of this proposal.

Agriculture Industry Impact

The Department does not expect any agriculture industry impact from the proposed new rule and repeals.

Regulatory Flexibility Analysis

Some New Jersey banks and savings banks are small businesses as defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The proposed new rule will impose compliance requirements on these entities if they seek to exercise a power, right, benefit or privilege authorized for out-of-State banks, savings banks or savings associations. The compliance required will consist of requiring the bank or savings bank to provide notice to the Commissioner of its intent to exercise such power, right, benefit or privilege and will require the bank or savings bank to provide a description of the intended activity, a copy of the regulatory authority that governs the out-of-State institution that the bank or savings bank proposes as the basis of parity, and a business plan and statement describing the general or specific experience of the bank or savings bank that establishes how the proposed exercise of parity will be conducted in a manner consistent with safe and sound banking practices. If banks or savings banks seek to exercise parity with out-of-State banks, savings banks or savings associations, professional assistance in the form of attorneys and accountants may be necessary. The cost of compliance will vary from professional to professional depending on the services needed.

The proposed new rule and repeals will grant New Jersey banks and savings banks flexibility yet require them to operate in a manner that is responsible to the industry, its customers and the general public. The Department does not believe that the compliance requirements are unduly burdensome and finds that they are consistent with prudent banking practices. The purpose of these requirements does not vary based upon business size. Accordingly, no differentiation based on business size is provided.

Smart Growth Impact Statement

The proposed new rule and repeals have no impact on the achievement of smart growth and implementation of the State Development and Redevelopment plan.

Full text of the proposed repeals of N.J.A.C. 3:6-12.2 and 12.3 may be found in the New Jersey Administrative Code at N.J.A.C. 3:6-12.2 and 12.3.

Full text of the proposed repeal and new rule N.J.A.C. 3:6-12.1 follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

3:6-12.1 State bank and savings bank parity with [national banks] and Federal and out-of-State institutions

[In addition to other authority granted by law, and unless contrary to State law, a bank may exercise any power, right, benefit or privilege which is now or hereafter authorized for national banks pursuant to Federal law or rules or regulations of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation. Any such power shall be exercised upon the same terms and subject to the same conditions as are authorized for national banks. The powers, rights, benefits or privileges shall be automatically exercisable upon the expiration of 30 days from the date of adoption by the Federal regulatory agency, except if the Commissioner of Banking and Insurance within that 30 day period provides notice that the power shall not be granted to State banks. Such notice shall be provided to each bank, and to the trade publications of the New Jersey Bankers Association and the New Jersey League Community and Savings Bankers, and/or their successor organizations, if any, for publication. The Commissioner of Banking and Insurance may permit banks to begin exercise of a power prior to the expiration of the 30 day period by providing notice of permission to each bank and to the above mentioned trade publications.]

(a) Banks and savings banks may exercise those powers, rights, benefits or privileges authorized as of (the effective date of this rule) and thereafter for national banks, Federal savings banks or Federal savings associations, either directly or through a financial subsidiary or other subsidiary, to the same extent and subject to the same limitations as national banks, Federal savings banks or Federal savings associations may exercise those powers, rights, benefits or privileges. Except as otherwise provided in this subchapter, pursuant to N.J.S.A. 17:9A-24b.1, banks and savings banks may exercise such powers, rights, benefits or privileges, notwithstanding the provisions of N.J.S.A. 17:9A-1 et seq. or any other law.

(b) Banks and savings banks may exercise those powers, rights, benefits or privileges as of (the effective date of this rule) and thereafter authorized for out-of-State banks, savings banks or savings associations either directly or through a financial subsidiary or other subsidiary, to the same extent and subject to the same limitations as out-of-State banks, savings banks or savings associations may exercise those powers, rights, benefits or privileges, provided that before exercising any such power, right, benefit or privilege, the Commissioner has approved, by rule, the exercise of such a power, right, benefit or privilege by banks and savings banks generally, or the bank or savings bank provides notice of its intent to exercise such a power, right, benefit or privilege to the Commissioner and, on a case by case basis, the Commissioner either approves the activity or does not determine within 45 days of such notice that the power, right, benefit or privilege is not to be exercised by the bank or savings bank on grounds of safety and soundness or on other grounds designated by the Commissioner by rule. Except as otherwise provided in this subchapter, pursuant to N.J.S.A. 17:9A-24b.1, banks and savings banks may exercise such powers, rights, benefits or privileges, notwithstanding the provisions of N.J.S.A. 17:9A-1 et seq. or any other law.

(c) The parity provided by N.J.S.A. 17:9A-24b.1 shall not permit a violation of:

1. Any provision of the New Jersey Code of Criminal Justice, N.J.S.A. 2C:1-1 et seq., including, but not limited to, the criminal usury limits established at N.J.S.A. 2C:21-19 as applied to loan products.

2. New Jersey statutes and rules providing for the structure and corporate governance of banks and savings banks, including, but not limited to, those governing amendment of a certificate of incorporation and adoption of bylaws, and those establishing rights of shareholders and members and the membership of a board of directors;

3. New Jersey statutes and rules providing for the safety and soundness of banks and savings banks, including, but not limited to, the limitations on liability to a bank as set forth at N.J.S.A. 17:9A-60 et seq., limitations on leeway investments set forth at N.J.S.A. 17:9A-24.12, and those providing for reports to and examination by the Department, including, but not limited to, N.J.S.A. 17:9A-252 et seq.;

4. New Jersey statutes and rules providing the Department with supervisory powers over banks and savings banks, including, but not limited to, the power to issue orders and apply for relief from a court of competent jurisdiction established at N.J.S.A. 17:9A-266 et seq.;

5. New Jersey statutes and rules regulating real estate appraisers, real estate brokers, real estate salespersons, and real estate broker-salespersons, including, but not limited to, the licensing and other provisions of the Real Estate Appraisers Act, N.J.S.A. 45:14F-1 et seq., and the licensing and other provisions of the Real Estate License Act, N.J.S.A. 45:15-1 et seq.;

6. New Jersey statutes and rules regulating insurance companies and insurers, including, but not limited to, the authorization and other provisions of N.J.S.A. 17:17-1 et seq., N.J.S.A. 17:46B-1 et seq., and N.J.S.A. 17B:17-1 et seq., provisions of the trade practices acts, N.J.S.A. 17:29B-1 et seq. and N.J.S.A. 17B:30-1 et seq., and provisions of the Insurance Information Practices Act, N.J.S.A. 17:23A-1 et seq.;

7. New Jersey statutes and rules generally regulating insurance producers, including, but not limited to, the licensing and other provisions of the New Jersey Insurance Producer Licensing Act, N.J.S.A. 17:22A-1 et seq.;

8. New Jersey statutes and rules regulating health maintenance organizations, including, but not limited to, the Health Maintenance Organizations Act, N.J.S.A. 26:2J-1 et seq. and the Health Care Carrier Accountability Act, N.J.S.A. 2A:53A-30 et seq.;

9. New Jersey statutes and rules regulating viatical settlement brokers, representatives, and providers including, but not limited to, N.J.S.A. 17B:30A-1 et seq.;

10. The prepayment penalty prohibition established at N.J.S.A. 46:10B-1 et seq. as applied to mortgage loan products;

11. The provisions of N.J.A.C. 3:1-16 as applied to the processing of mortgage loan applications and loans;

12. The provisions of N.J.A.C. 3:1-2.15 as applied to the closing of an office;

13. The provisions of N.J.S.A. 17:9A-316 prohibiting the establishment of a de novo branch office by a foreign bank;

The provisions of N.J.S.A. 17:16N-1 et seq. regarding Consumer Checking Accounts;

The provisions of N.J.S.A. 17:9A-1 et seq. and 17:12B-1 et seq. requiring any application or approval process; and

The provisions of the Uniform Commercial Code as adopted in New Jersey at N.J.S.A. 12A:1-1 et seq.

Prior to the exercise of any power, right, benefit, or privilege exercised by an out-of-State bank, savings bank, or savings association, a bank or savings bank shall submit a notice of intent for the Commissioner’s approval. Such notice of intent shall include: a description of the intended activity and a copy of the statutory or regulatory authority, including any pertinent regulatory interpretation of such authority, that governs the out-of-State institution that the applicant bank or savings bank proposes as the basis for such exercise of parity, and a business plan and statement of the general or specific experience of the applicant that establishes how such exercise of parity would be conducted in a manner consistent with safe and sound banking practices. The items submitted as part of the business plan and the statement of exposure shall be treated as confidential by the Department and shall not be public records pursuant to N.J.S.A. 47:1A-1 et seq. The Commissioner may disapprove the exercise of any power, right, benefit or privilege on the grounds of: an incomplete notice of intent; safety and soundness; or other grounds as provided in this subchapter. The Commissioner may condition the exercise of any power, right, benefit or privilege on the grounds of safety and soundness; or on other grounds as provided in this subchapter.

A bank or savings bank that violates the provisions of this subchapter shall be subject to the enforcement provisions of N.J.S.A. 17: 9A-267, 268 and 269.

Pa683b/inoregs

I stand by my initial comment that California is disproportionately populated by people lacking in moral character. That doesn’t mean most Caifornians are ethically deficient. It simply means that a higher percentage of people there are ethics-challenged than elsewhere in the country. This is widely understood.

Okay…..I have to pipe in. This is most innane post I have ever read! Good grief! California has an inordinate amount of people of questionable moral character therefore, that is reason we are in the crisis we are in? Okay, let’s throw out some more ridiculous generalizations: Nevada’s housing slump is because it allows gambling and there are immoral people there. New York deserves everything they are experiencing because of the immoral, greedy people there. New Jersey should sink because they have greedy, immoral people there…..I could go on and on but you get my point…….But let’s go live in the midwest……yes, that is where we should live because it does not have immoral, greedy people living there who did not sell sub-prime loans and Option ARM products?

Hey, there are immoral, greedy people in every state of the union. Moe……any comments from a fellow Southern Californian?

NCLO

Most referral based loan officers, who are career oriented, did not sell inappropriate loans to anyone with a credit score. Most of the people I know and work with keep their compensation to 1 to 1.25 TOTAL points (origination and YSP) and only used YSP to offset costs to the borrower (which was thoroughly explained and disclosed). YSP was not used to increase compensation and gouge the borrower. It was always the borrowers’ choice if YSP was used.

If you read through the posts, most of us could count on our hands how many POA were sold to our clients and most of them were to real estate investors who knew exactly how to work them. I personally have a 7-year interest-only product and like the flexibility of paying the interest-only payment if I need an increase in cash flow (which of course comes in handy now) OR I can pay down the principal in however large a payment I want and have the next month’s payment based on the new balance, not the original balance. These types of loans are invaluable to people, such as myself, who are commissioned only/self-employed and may need the flexibility of lower payment to increase cash-flow…..

I have been in the mortgage industry for 15 years. Underwriter for 5 of them. I have seen all different borrower income brackets, credit and situations. I have worked with a TON of broker offices. Several years ago when the Option arm was at it’s height Brokers were making a killing on the back end without blinking. They did not have to even know what the Option Arm was!! They just knew they could make a ton. There were disclosures that would be signed by the borrowers regarding these Option Arms that even the most educated people would be confused by. It was quite alarming how many people that these loans were being offered to. When I first started U/W these loans we were given very brief information on these. We were told “These loans are truly for the business savvy borrower”. We were told these loans will help people save for college for little Johnnie and give borrowers cash flow to “Invest”. It was all “Bull”!!!! I think out of the tens of thousands of loans that I U/W maybe a handfull were “Business Savvy”!! The borrowers I U/W did not currently have any savings, most did not have the same job for 2 years and their credit was less than perfect. They could NEVER qualify for the loan if the recast payment was used to qualify them. I made several comments to brokers letting them know these loans were quite dangerous. I asked them if they had “educated” their borrowers on the terms of these. Almost all said “No”. They just knew they could make a Ton of money and that I just needed to U/W the loan and pretty much keep it to myself. I even brought it to the attention of the Upper Mgmt that the borrowers were really not being educated on these loans. That borrowers should know what they are getting into. It did not matter to them either. They just saw the dollar signs and not the people. Greed has taken over and now it is time to pay the piper!! Unfortunately the innocent will suffer.

This is a great article. I used to blame the people that were taking out loans for not reading through the details or understanding what they were getting themselves into. But then I had another thought…

Working in investment banking, you do forget that the terms like “Option” and “ARM” are not widely understood. Now, before you blast me, I have nothing to do with the packaging of mortgages or other types of debt but rather in share trading. The whole area of Options and ARMs is incredibly complex. Negative amortisations and lots of other complex terms are often bandied about but when it comes down to it, yes people have some responsibility to understand what they are signing BUT the person selling them has more responsibility, especially if they are being not completely truthful with all the details – probably because they do not understand it themselves.

So who can we blame – the people that took out the loans? A little but to be fair, these people were after a loan.

The groups that are responsible and should also bear the burden is the people that had the money to lend. Let’s think of this a little bit differently. I walk into a bakery store and buy a loaf of bread. If I do not have the money, the baker will not sell it to me. If I become a good customer at the bakery, then the baker will give me a little credit but never too much.

So, if the baker is being very careful with giving me bread up to $20, you have to wonder why a bank would be handing over $200,000 without any hope of repayment? In my example, the baker would assume the loss if I decided never to come back, so shouldn’t the bank as they should have been more careful with their own money (hence their shareholders)?

In a free market system, the people making the loans should have been more careful. Their own fault. No bailouts. If politicians had the guts, they would say this clearly to the original loan companies.

Now, the loans were packaged and sold the way shares are around the world – however there is no reason that the companies/funds that own the mortages do not start to pre-empt things and talk to the people with the loans, then they should take the hits as defaults rise.

If I was in a situation, I would not want to ruin my credit history by defaulting. However (some of you are really going to hate this) being a rational free marketer, if I had assets of $200,000 and the loan is $500,000, with equity of $100,000 – does it make any sense to pay this off? NOPE! As long as there is a reason for not destroying my credit (such as not working in certain professions), any rational individual would be crazy not to default. This does not mean people are morally bankrupt or have fake boobs or male members, it means they are acting rationally.

Making moral judgements of people based upon stereotypes and lack of understanding of people’s individual scenarios is unfair, and given this is now the 21st Century, it would be nice to move away from this.

I do wish people in difficultly my best wishes. It is not easy going through the uncertainty that the next few months will bring, but there is more to life than material things. If the worst should happen and you loose your home, you should be willing to rely on your friends and concentrate on things that actually make you happy.

As far as the generalizations about fake boobs and lack of moral character in Southern California, I stand by these claims because it is the truth. Just like this is the land of the slimy broker, 745 beemer driving, sushi eating, never, ever should have sold a loan in your life capital of the world.

This is not a blanket comment because there are a tremendous amount of good people, good brokers and natural beauties who have plenty of moral character in California. I am proud to be a Californian.

There were more loans churned out in places like Quick Loan Funding, Bridge Capital, Ameriquest and other chop shops that churned the toxic crap out by the thousands.

Thanks for the comments Jackie and JacMac. It’s nice to hear from the homeowners. In no way am I bashing anyone that took out these loans. Many were sold to borrowers who did not understand them and even the loan offciers selling them didn’t . They only understood the commission they were making.

Virginia – I did not say that California is in this crisis because of questionable moral character. But the reason that California is in so deep is because of the fact that lenders targeted this state to make as many loans as they can and a huge number of POA’s. Which I have more than supported with data.

There are definitley people of questionable moral character in every state in the union and Southern California is a great place to live and I love it here.

But there are just too many people living way above their means and living on credit and pay option ARM’s.

NC, Eric, Bob, great comments. Paul,

Kim – It’s nice to hear from the underwiters too. They always seem to agree with my observations.

To comment #17… No I am not a “speculator”. Once again someone ASSUMING they actuall know about my life. Due to a personal situation I got into a POA with the obvious intention of refinancing this past August. I have worked in the same business for 15 years and have a great son. If you read about the lending business and how the brokerage firms were involved you might see the bigger picture.

Viginia

I have read many of the posts and it makes me feel better knowing that there were other LOs that felt the same way I did and used these products properly.

I too see great value in this, I/O and ARM loans… but when used by the right people in the right way. I sold a few I/O loans becuase they made sense and the people understood the pros and cons. Nice to know we weren’t all out for the quick buck and some LOs were really trying to help clients.

It was hard seeing all the people pitching Option ARMs (and fraud) making the easy money while we had to work for our clients. I lost a few deals when the client would not see past the payment… to have them come crying to me over the last year for help. Most times, there was nothing to be done unfortunately, but I guess people are starting to see the difference between listening to a good sales person and a mortgage consultant.

To Moe – great article warning more people who didn’t already know about the disaster looming large. To strike a crude analogy: when the option ARM crap really hits the fan it will make Katrina look like a brief rain shower like San Diegans experience once in a great while. The repercussions on Wall Street will far exceed a “correction” and many people who have no stake whatever or no connection with option ARMS will suffer investment losses as a result of the implosion.

So where does the culpability lie? Before I posit my opinion, I’ll say that I have been engaged in banking, consumer finance, and mortgage origination for 30+ years. For the last 5 years I have originated primarily rehab loans, both conventional and FHA 203K’s. Most of my business comes from referrals of REO brokers, and thanks to the necent wave of foreclosures and the coming tidal wave, business has been good and will get even better, not that I would wish the loss of one’s home on anyone.
I have never originated an option ARM.

That said, I feel obligated to comment on the culpability question, and yes, someone should be blamed for what’s coming! Simple answer, all parties! Lenders, borrowers, and brokers. The motivation is a common one: GREED. Except for the examples given above by Paul in New Jersey, about option ARMS to savvy borrowers. There are a very few out there who know how to make this vehicle work as it can and Paul’s client is the rare example.

I want to comment on post #1 Midwesterner.

I happen to agree that some Californians are the Hedonists who thought that their POA’s would help them reap the benefits of the promised land. Not all but some! And for these I have no pity whatsoever! In fact, it serves the San Francisco liberals right (no pun) to get thrown out on their behinds. After all, they are the same people who disdain our military, allow the sacrileges in churches, and look down on the “have nots”. Idiots like poster Michael, #21 suggest we impeach the VP! Real bright! Also it must be the President’s fault, right Einstein? The same San Fran liberals will be seeking a fed bailout and a mortgage freeze if the Dems come to power. Hell, Hillary already said she would “freeze” mortgages.

The whole point is, people get what they deserve! Shame on the bank for hawking this toxic product for growth and profit. Shame on the borrower who didn’t invest some diligence in exploring what was being sold. Shame on the brokers who unlike Brad, #5, didn’t give a damn what the financial future could bring the client after they left the closing table. There’s hell to be paid, and it’s coming soon.

The option arm is a necessary tool with today’s borrower. Self employed or salaried. With people running up credit card debt (18%-21%), no money in the bank and nothing going toward their children’s college education, this product allows borrowers the opportunity to decide where their money goes. I didn’t read anywhere in anyone’s blog about Wachovia’s exclusive Equity Builder feature which allows borrowers to eliminate interest over the life of the loan. No tricks there. The loan re-ammortizes every 14 days, therefore the borrower only pays interest on what they owe. And don’t get me started on fixed rates. If the average borrower is in their MORTGAGE for 5 years, what do you think the effective interest rate is on their wonderful loan? Let’s say the borrower took a $300,000 mortgage at 6.00% for 30 years. That’s a monthly payment of $1,798.65. SOUNDS great, but look at it more closely. The rate is only 6.00% if the borrower stays in the loan for 30 years! If the borrower stays in the loan for 5 years they’ll pay:

$87,082.16 Interest

$20,836.93 Principal
_________________

$107,919.09 Principal and Interest

$279,163.07 Balance at the end of 5 years

Now solve for the true EFFECTIVE INTEREST rate if they’re in the loan for 5 years…

Type in the numbers on your mortgage calculator

Type in $20,836.93 then hit loan amount (principal paid)

Type in 5 then hit term (in mortgage for 5 years)

Type in $1,795.65 then hit payment key (payment they’ve made)

Solve for/hit interest key and what do you get???

Really, 102.84%

Congratulations on a phenomenal product.

Now that I just made all of you sick who refinanced out of a fixed rate into another fixed rate…relax. You still have time to take an option arm. Just keep an open mind and talk to someone who will take the time to explain it and show you how to use it as a tool.

Take care

Options are Good

You are bad!!!!!! Do you sell cars???? Nice creative accounting!!!! The borrower paid 6% on the money he owed…period!!!! I will try and make it SIMPLE FOR YOU!…..If you put 300K in a cd for 1 year at 6%, do you know what the bank would give you at the end of the year??????$18,000 worth of interest…..So if you borrow 300K at 6% , you owe the bank 18,000 for use of the money for the year!!!! So on a 30 year fixed 300k loan @6%, you payback lets say JUST FOR SHITS AND GIGGLES 3000 IN PRINCIPAL FOR THE YEAR(BECAUSE I DO NOT FEEL LIKE GETTING THE PROPER AMOUNT) tHE NEXT YEAR YOU PAY 6% ON THE 297K YOU OWE….YOU DO NOT COMPOUND THE INTEREST RATE!!!!!!

If I put 300,000 in a CD for 60 months at 6%…do you know what I would have in dollars after 60 months?????? $401,466…Is my rate of return 102%…………. or 6% …THE ANSWER IS 6%

I hope you are not a loan officer!!!!!!!

Whoops, this is a bailout situation, however, this new entity should include law enforcement of imvestigation of fraud and collection of assets from all the fraudulent brokers, appraisers, loan officers, loan “clerks”, etc. to help pay for it. There should also be a “mortgage fraud” tax on these guys instead of jail time. In other words, no jail, but they pay extra taxes every year that goes into the bailout fund. Also community service too… Our jails are too full with other criminals. Hit em where it hurts in THEIR pocket book.. Oh, and throw a few years of probation…. or instead of sexual predator, it could be financial predator, registered. Lets face it, that is what they were.

Options are good

One more point, the 87,000 (@6) in interest in on 300k not the principal that has been paid back!!!!!

Drum roll please . . .

Paul????

Interesting article re: foreclosure rates per capita per state. It includes a heat map: the pinker the state the more foreclosures per capita. While California does rank #5, the top three states are Nevada, Florida and Ohio. To round out the top ten we also have Colorado, Michigan, Georgia, Arizona, Indiana and Illinois.

Here is the link to the article and map:

http://biz.yahoo.com/prnews/071219/law017.html?.v=101

I guess there are a lot of big boobed, amoral hedonists everywhere….even in the midwest!

Hey Paul,

Nice reply. This is where you lose me though. Anyone who is or isn’t in the mortgage business can tell you that on a 30 year fixed rate the interest is frontloaded, right? Right. That’s why my example isn’t creative financing. Again, they’re not paying at 6% if they’re only in the loan for 5 years. Gotta be 30 years my friend. Try getting your arms not only around the payment, but also how it’s applied. Bashing option arms is the hip thing to do right now. Fine. The lenders who underwrite and appraise the properties properly will sustain this current crunch. There are plenty of people who have and love the loan. Not because they’ve been able to live above their means, but because it’s helped to change their financial future. Why should a self employed borrower be the only one who should enjoy all the benefits that come with payment flexibility? Correct, you don’t have a good answer for that one. That’s why I will continue to be successful. I educate my borrowers. I don’t simply answer the phone and quote a rate. If you take the time to show borrowers all of their options, then you will have repeat customers for life.

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Option ARMs are a dangerous option

When daredevils are about to perform a hair-raising stunt, they often admonish viewers: “Don’t try this at home.”

We think a similar warning should accompany one of the newer twists in mortgage financing: option adjustable-rate mortgages or option ARMs. Unless you are extremely well-versed about these complex loans, you risk a nasty surprise that could cost you your home.

An option ARM is a type of adjustable-rate mortgage with as many as four different monthly payment options and, depending on its underlying index, an interest rate that could change every month.

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In most cases, each month the homeowner gets to choose one of four ways the mortgage check can be treated:

A conventional 15-year loan in which your payment covers all of the interest and some of the principal.

A conventional 30-year-loan in which your payment covers the interest and a little less of the principal.

An interest-only loan, where you pay enough to cover the interest but none of the principal.

A minimum-payment loan where you don’t even pay enough to cover that month’s interest, with the unpaid portion being added to the principal, which increases the amount you owe. Some loans will even let you skip a payment altogether with the entire interest charge being added to your principal.

The goal of the option ARM is “to get the payment as low as possible,” explains George Yacik, a vice president at SMR Research, a New Jersey firm that studies the home mortgage market and home equity lending.

The latest and most deceptive advertising for option ARMs calls them “1% mortgages.” That’s not the real interest rate. It’s just the interest rate the minimum payment is based on. So if the real interest rate is 6%, the additional 5% is being added to the borrower’s debt.

Amazing as it may seem, some lenders are even promoting their option ARMS as “Negative Amortization Loans,” like that’s a good thing. They’re just counting on consumers not understanding what that means.

The option ARM is a direct result of skyrocketing house prices across the nation. Since many first-time buyers need help buying their first home, more of them are turning to option ARMs.

While fewer than one in 100 borrowers took out an option ARM in 2003, more than 12 in 100 did so in 2006, according to LoanPerformance, a company that follows lending trends.

“Without them, a lot of people would be shut out of the housing market,” Yacik says.

But lenders often attract borrowers with startling low initial rates of 1% or 2% and the promise of a minimum monthly payment that is far less than any other mortgage could possibly offer.

Borrowers, especially those who signed up for an option ARM because they couldn’t afford a more traditional loan, could quickly get into trouble when:

Their interest rate immediately goes up, making their payment options more expensive. Traditional ARMs fix initial interest rates for one to seven years, and then reset once a year. Option ARMs usually begin resetting rates right away and adjustments are made every month.

They repeatedly choose to make the minimum monthly payment — or skip a payment — adding hundreds, and in some cases more than a thousand dollars a month, to their debt.

Some ARMS periodically require borrowers to catch up on all unpaid interest as well as any interest that has accrued on that interest with a type of balloon payment.

Others have “principal caps.” If your debt reaches 110% of what you originally borrowed, the minimum and interest-only options disappear and you have to start paying all of the interest and part of the principal every month.

Don’t have it? Want to refinance and get out of the loan? Many option ARMS also impose penalties of $10,000 or more if you try to pay them off early.

So if you don’t understand how an option ARM works in general, and how your lender’s loan works in particular, you could slam into a financial wall in just a few years.

Let’s look at how different repayment schemes affect an option ARM loan for $100,000 with a starting interest rate of 4.75% amortized over 30 years.

At the end of the first 30 days, you will owe $396 in interest. If you made the standard monthly payment, treating it like a conventional 30-year loan, you would send the lender a check for $521. That would pay that month’s interest and reduce the total amount owed by $126, leaving you with a balance of $99,874.

If you treat an option ARM like a 15-year loan and pay $778, your interest would still be $396, and the remaining $382 would reduce the principal to $99,618. Both of the above examples whittle down the principal amount owed and also cover all the interest due.

But if you choose to make an interest-only payment, such as $396, that means you still owe $100,000 to the lender and have not built any equity in your home. Given that the interest charge could change every month, you also run a very real risk of facing larger monthly payments that don’t reduce the principal.

Now let’s look at what happens when you opt to make a minimum payment of $200 a month. Since that payment is less than the interest owed, the excess unpaid interest of $196 gets added to the principal.

In month two, you owe the interest on $100,196. At 4.75%, that is $397. If you make only the $200 minimum payment again, you get the unpaid interest — this time $197 — added to your principal so you would then owe $100,393.

As you can see, the longer you make minimum payments that do not cover the interest, the larger your debt.

You end up owing your lender thousands of dollars more than you initially borrowed. You could also face balloon payments or huge monthly payments that you can’t afford on a house in which you have built no equity.

It’s little wonder that George McCarthy, a housing economist at New York’s Ford Foundation told Business Week that option ARMs are “like the neutron bomb.” They’re “going to kill all the people but leave the houses standing.”

By Stef Donev

Interest.com Contributing Editor

Have a question about your finances? Ask us at editors@interest.com

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1/3/2008 2:42:40 PM

Fixed ARM Interest Only

30 Yr Fixed 5.70%
15 Yr Fixed 5.22%
30 Yr Fixed Jumbo 6.67%
15 Yr Fixed Jumbo 6.15%

3/1 ARM 5.39%
5/1 ARM 5.48%
7/1 ARM 5.69%
10/1 ARM 5.94%

3/1 ARM (I/O) 5.41%
5/1 ARM (I/O) 5.52%
7/1 ARM (I/O) 5.69%

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Joke appraisals- yes, lower payment to get into the property- yes, it was eaiser to qualify- yes.

I never said you make 4-5. I never said you dealt in fraudulent activities… but many brokers do!

If you pay the min. payment you NEG AM!!! Cost of loan goes up!

If you make IO payment or a fixed payment you are paying the interest on the orginal loan amount!!!! Same as your 102% effective rate!!!!

COFI index for Dec. 2007 4.5217+ margin 2.25-2.75…your rate is higher than a 30 yr fixed!!!!

6 month LIBOR…4.60+MARGIN 2.25-2.75…YOUR RATE IS HIGHER THAN A 30 YR. FIXED.

How is this better than a 30 yr. fixed????? OR CHEAPER?????

The effective rate on a 30 yr fixed is not 102%!!!!! I do not know what else to say!!

WHAT DOES EVERYONE ELSE HAVE TO SAY ABOUT THIS???
WOULD LOVE TO HEAR OTHER PEOPLE HAVE TO SAY!!!!

Optionsaregood

As you have stated in earlier post…people with credit card debt18-21%, no money in the bank, no money for the kids college education…this products allows the borrower the opportunity to choose were there money goes…….WHAT?????? If they have no money, credit card debt, no money for the kids….MAYBE, JUST MAYBE THEY SHOULD NOT BUY A HOUSE!!!!!!!!! Just a thought!!!!!!!

Just my opinion.

I want to wholeheartedly recommond this forum to those who just popped up here or may have been lurking and are scared, unsure — perhaps you’ve just realized you’ve been taken for a roller coaster ride, and the price of the trip is more than they said, more than you can afford — the point is, the forum is a wonderful place, and it is SAFE!

THe internet can be a scary place, with people posing as someone who wants to help you but what they really want to do is make a buck. This is NOT one of those places.

You can save your home OR do something about what is happening to you. Even though you’ve been victimized, you don’t have to be a victim. Take power over your life again!!!

This forum can help you make choices that are right for you, and you’ll be amongst people who are just like you, and who care. I’m speaking from personal experience AND I’m not getting anything for saying this!!!

AND THE PLOT THICKENS: (As investors get hit in the pockets, we’ll see a large CRY for change, I bet ya)

“The State Street Corporation, which manages $2 trillion for pension funds and other institutions, ousted a senior executive on Thursday and said it would set aside $618 million to cover legal claims stemming from investments tied to mortgage securities.
Skip to next paragraph
Photographs by Boston Portrait

James S. Phalen, left, will succeed William W. Hunt at State Street.
Related
Times Topics: Mortgages and the Markets

State Street made the announcement after five clients sued it, claiming they had lost tens of millions of dollars in State Street funds that they were told would be largely invested in risk-free debt like Treasuries. One fund lost 28 percent of its value during the credit troubles in the summer after placing big bets on mortgage-related securities, according to the lawsuits.

The move by State Street highlights the legal challenges that lie ahead for financial firms that were involved in the origination, packaging and sale of complex mortgage securitieS . . .

READ THE COMPLETE ARTICLE HERE: http://www.nytimes.com/2008/01/04/business/04state.html?_r=1&th&emc=th&oref=slogin

I agree with you JacMac. I’m already a member of the forum and I highly recommend it for all homeowners stuck in predatory loans with predatory servicers…..This site is a wealth of information.

JacMac,

I sell this as a 25 year loan. They don’t get the most out of it if they refi in 2-4 years. Borrowers live off of their equity. At least they have been over the past 4 years. Stay in the loan and let it work for you. Max out your 401K, pay off your debt. Borrower the money against your home. It will appreciate over the long haul.

What about the option arm that lets the borrower convert to a FNMA fixed rate after year 3 up to the end of the 7th year of the loan? Is that not an amazing option. The fact is that most borrowers are going to continue to refi. Look at the closing costs every time the borrower refis.

Talk about neg am…how about this example. This is for you too Paul.

A borrower takes out a 30 year fixed rate w/ a 6.50% rate $300K l/a.
House is worth $400K
3 years later the borrower finds out his house is worth $420K and decides to cash out at $315K which is another deal at 75% LTV.
The borrower takes another 30 year fixed and gets the same 6.50% rate.

I dare you to tell me I’m getting creative here…..

Now your borrower started off with a 30 year fixed, but refinanced 3 years in thus turning the true “term” of the loan to 33 years and his balance went from $300k to $315k. Is that not neg-am? So, you get a neg am loan which takes an extra 3 years to pay off, IF they don’t refi again. Again, A JOKE!!!!!!!!!!!!!! Yeah, that’s the fixed rate mind set.

The best option arm on the market allows the borrower payment options, the option to convert to a FNMA fixed years 4-7 AND it pays off 4-6 years early because of the Equity Builder feature. When your borrower understands the product, how can they go wrong with this? The key is not to panic when the rate goes up. It is an adjustable. The rate will go up and the rate will go down. Use your options wisely and earn a greater return on your money somewhere other than your “equity.”

I love when other people in the industry are afraid to sell and explain this product to their customers. They come to me and I close every one of them. Get all of their family and friends too.

Call me if you want to learn.

Optionsare Good

If my customer came to me because they needed 15k, I would give them a home equity!!! Why make them pay for a closing???????????? Home equity closing cost???????$50.00

YOUR HOSUE SHOULD NOT BE USED AS A ATM!!!!!!!!!!! THAT IS WHY WE HAVE SO MANY PROBLEMS…SPEND- BORROWER -REFI….OH SHIT, WHAT DO YOU MEAN MY HOUSE IS 100K LESS THAN I PAID FOR IT!!!!!AND GUESS WHAT WHEN YOU REFI YOUR CUSTOMER 4-7 YEARS DOWN THE ROAD….DIDN’T YOU JUST SEND THEM BACK TO A 30 YEAR LOAN????????? WHAT IS YOUR POINT!!!!!!!

If it looks like duck, talks like a duck, it is a duck!!!! and you are MOTHER GOOSE!!!!!

The effective rate is NOT 102%. Send your example to any banking Dept.CFP,CPA and they all will laugh at you!!!!!!

You can build equity with any loan, just send in extra principal!!!!!! Yes, you can send a extra principal payment every 2 weeks with a fixed rate loan!!!!!!!

Yes you can refi in 4-7 years…what if rates go up??? What if property lost value??? What if you neg am>????balance is higher at a higher interest rate!!! What if you can not qualify???If you like this loan so much move CA and sell them!!! You belong there!!!!!!!!

Option ARM’s are Baaaaaaaaaad

My wife and I are in a situation that is spinning out of control. We have an ARM that is currently at 10.99 and is schedule to adjust again in March. We are current on our mortgage but have recently been turned down for a rate and term refi because my lender, Saxon Mortgage is no longer doing non-conforming loans. The Saxon loan rep suggested I try a loan modification request. Can anyone share any advice on how to present my financial picture so that we can get a favorable modification? Also can anyone recommend other lenders who will do a non-conforming loan in Georgia?

OptionsAre Good

You did not address my example!!! No answer????

Paul,

Okay. I sell the Pick A Payment loan offered by Wachovia (formerly World Savings.) We use the CODI index which is derived from using the 12 month rolling average of the nationally published 3 month CD. The index is currently at 5.293 (which will drop tomorrow) and the margin at par is 2.25 (with the borrower paying points up front.) This has NO PREPAY. All of my customers use the Equity Builder feature. It is the only true bi weekly program in America. They have a patent for the product. Other bi weekly programs claim to help reduce the interest on your loan, but the fact is that all you wind up doing is making an extra payment over the course of the year. With Wachovia’s EB you only pay interest on what you owe, every 2 weeks Wachovia goes into your account, takes a half payment, then applies it immediately to your loan. Your loan actually re-ammortizes every 14 days. Only loan in America to do it. And…you can “advise” your borrowers to pay their fixed rate every two weeks, but 99.9% won’t have the discipline to do it. And the interest is already calculated anyway. Doesn’t matter. Bank still collects the same amount of interest. True or False? Right, true.

Now forgive me, but I don’t have the 10 year history of the CODI index in front of me, but I will give it to you tomorrow. What you’re going to tell me is that fully indexed this loan is at 7.543%. Great. What I’ll tell you is that the index’s average over the past 7 years is under 5.293. But for informational purposes I’ll give you an example tonight of what the bi-weekly feature does.

On a traditional 30 year fixed rate loan w/ your example the borrower pays $329,916 in interest.

Care to take a guess how much interest the borrower pays if they take my loan as is, with the 7.543% rate, paying bi-weekly @ 7.543%? $336,434. That’s a difference of…$6,815. An effective interest rate of 5.86. Not creative financing as you call it. That’s it. That’s the power of using the Equity Builder feature with this product. Oh, by the way, the loan pays off in year 24. A nice product for someone who wants to retire in 24-25 years and not have a mortgage payment to worry about. Not bad for an option arm, eh? Now imagine how the loan performs with a fully indexed rate that’s lower on average over the life of the loan.

The other thing that you fail to mention in your last post is that most borrowers aren’t going to get a rate of 5.75%. That’s a rate for the borrowers with A paper credit. It’s easy for the people who aren’t educated to throw out rates like that, but that’s okay. It’s been my experience that the people who have the most to say really like the product and want me to overcome their objections.

I’m curious to know what you do. Do you work for a bank or are you a broker? So many benefits to this product it’s scary. I don’t know why I’m trying to convince you though. The more people that become educated about the product means more people that I have to sell against. As it stands now I don’t get shopped and have no fear of getting shopped. You have to offer this product from Wachovia to compete and many brokers are afraid. $$$$$$$$$$$$$$$$$ for me!!!

I hate to sound arrogant, but I truely believe in this product. Been selliing it for years and my people always come back. Amazing.

Big Daddy,

It’s clear that you’re informed as well. COSI and CODI are both good. The margin is a little lower on CODI, so that’s what I go with. Thanks for the info.

Later

OAG

Lets See……
codi……………….5.293
margin…………..2.250

RATE…………….7.543….Not Good!!!! And paid points!!!!!!!!

30 yr fixed….5.750% !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!NO POINTS!!!!!!!!!!!!!!!!

Yes your client is paying every 2 week at 7.543%%%%

Well, what if they made 13 payments in 12 months at 5.75%. I am sure they will like this MUCH BETTER AND NOT HAVE PAID POINTS!!!!

If they are willing to make payments every 2 weeks at 7.543%, then why wouldn’t they make 1 extra payment every 12 months AT 5.75%??? THEY COULD EVEN ADD THE DIFFERENCE BETWEEN THE PAYMENT OF 7.543% AND 5.75%…NOW THAT WOULD REALLY BUILD UP EQUITY!!!! Or fund a IRA…….Remeber OPTIONSAREGOOD, you stated in a eailer post your clients have crediT card debt 18-21% and no money to save and no money for college…SO HOW ARE THEY PAYING EVERY 2 WEEKS?????????? WHY WOULDN’T THEY PAY OFF THERE HIGH INTEREST CREDIT CARDS FIRST, INSTEAD OF PAYING OFF SOME OF THERE PRINCIPAL AT 7.543%…NO THAT WOULD BE TRULY SMART!!!

Lets ee, should I pay off my mortgage at 7.543% or keep paying the min. payment on my 18% CREDIT CARD!!!!! I hope you have learned something here!!!!!!!!!

OAG

WACHOVIA HEADED DOWN WRONG PATH!!!! LOAN LOSSES 4X GREATER THIS QUARTER!!

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$1.3B in losses hurt Wachovia; bank signals more trouble
Posted 79d ago | Comments22 | Recommend17 E-mail | Save | Print |

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Digg del.icio.us Newsvine Reddit Facebook What’s this? CHARLOTTE (AP) — Wachovia (WB), the nation’s fourth largest bank, said Friday its profit fell 10% in the third quarter, hurt by $1.3 billion in losses and write-downs related to turmoil in the credit markets.
The company also quadrupled its loan-loss provisions in the quarter and signaled increasing credit troubles ahead.

Wachovia said net income fell to $1.69 billion, or 89 cents per share, in the July-September period compared with $1.88 billion, or $1.17 per share in the year-ago period.

Revenue grew 4% to $7.35 billion.

After-tax expenses related to the bank’s acquisition of Golden West Financial amounted to 1 cent a common share.

FIND MORE STORIES IN: Revenue | Wachovia | Golden West Financial
Earnings in the third quarter also include a $249 million gain from correcting results from earlier this year.

Wall Street expected earnings of $1.03 a share on $8.02 billion of revenue, according to analysts polled by Thomson Financial. The earnings estimates typically exclude one-time items.

Chief Executive Ken Thompson said the summer’s fixed-income markets “clearly had a disappointing impact on the results of market-oriented businesses, but the strength in our core banking and brokerage businesses continued to serve us very well.”

He added, “we’re taking the appropriate steps to ensure that as markets remain unsettled, we focus intently on actively managing our exposures and controlling costs.”

In the quarter, Wachovia recorded a provision for credit losses of $408 million, up from $108 million, reflecting modest deterioration in credit quality, a more uncertain credit environment and loan growth. Net charge-offs were $206 million, or 19% of average net loans.

Corporate and investment banking operations saw earnings sink 80%, as revenue tumbled 51% to $819 million. The business unit had earnings of $105 million, down from $428 million, driven by the $1.3 billion effect of the market disruption.

Wachovia’s general bank saw earnings jump 33%, with revenue climbing 30% to $4.5 billion. Results were driven by increased loans and deposits and reflected the bank’s October 2006 acquisition of Golden West Financial.

Net interest margin, a measure of the difference between Wachovia’s borrowing costs and lending rates, dropped to 2.92% from 3.03%.

Third-quarter results included the full-quarter impact of Golden West. Results do not include the effect of the bank’s acquisition of retail brokerage A.G. Edwards, which closed on Oct. 1 of this year.

For the first nine months of the year, net income was $6.33 billion, or $3.30 a share, up from $5.49 billion, or $3.43 a share, in 2006.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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Comments: (22)Showing: Newest first Oldest first

Woo.. wrote: 58d ago
ain’t that sumthin….the creditors are having credit problems…wonder what their FICO scores are?

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rainman07 wrote: 78d ago
…isn’t it interesting that all of these financial institutions losing money in the billions don’t seem to affect “Wall Street”….it’s all rosy as long as buy and sell commissions are paid.

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commonpurposecon wrote: 78d ago
Join a credit union, community bank. These International Banks should not be in business. The Global Union goes after countries in trouble through agencies such as the UN and rapes the environment and its human resources. These finaincial institutions help do the job for them.

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BEZA2424 wrote: 79d ago
I WONDER IF THEY WILL FIRE ALL THE EXECUTIVES RUNNIG THIS COMPANY ? FAT CHANCE AND IF THEY DID THE OLD GOLDEN PARACHUTE WOULD HELP THEM LAND SOFTLY SO MUCH FOR CONSEQUENCES THEY ARE FOR THE LITTLE GUY

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brianronjon wrote: 79d ago
This is my own bank- – - I think they should reloacte their headquarters to Dingbatville. The day of reckoning is here. Without a thought for tomorrow; how financially irresponsible can Wachovia ( and many other financial institutions) be to make millions of dollars in mortgage and other loans to OBVIOUSLY unqualified individuals. What happened to common sense when a bank would check your earnings, outstanding bills, etc.? This is the result of Hot-Doggers- – - all they are interested in is the quick bottom line numbers without regard to being able to sustain the unsupportable numbers. God help us.

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Madd Maxx wrote: 79d ago
Hopped Up Harry wrote: 24m ago
Another NC bank in trouble.
~~~~~~~~~~~~

They are in FL too and I bet that’s what killed them. Stalled projects, foreclosures and hotsy totsy rich stuff like that. One in every 68 homes in this area is under foreclosure.

I’m a renter : )

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happy1212 wrote: 79d ago
Stop writing those darn ARM’s and you’ll see your bottom line become steady!!

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Hopped Up Harry wrote: 79d ago
Another NC bank in trouble.

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TxGulfCoast wrote: 79d ago
Consumers are just stupid or at best ignorant if they keep paying banking fees, interest payments and etc.

As ZoomZoom says, it is easy to avoid them.

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ZoomZoom Diva wrote: 79d ago
Charlie, if you don’t like the fees, don’t pay them. They are all avoidable, most very easily.

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$1.3B in losses hurt Wachovia; bank signals more trouble
Posted 79d ago | Comments22 | Recommend17 E-mail | Save | Print |

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Digg del.icio.us Newsvine Reddit Facebook What’s this? CHARLOTTE (AP) — Wachovia (WB), the nation’s fourth largest bank, said Friday its profit fell 10% in the third quarter, hurt by $1.3 billion in losses and write-downs related to turmoil in the credit markets.
The company also quadrupled its loan-loss provisions in the quarter and signaled increasing credit troubles ahead.

Wachovia said net income fell to $1.69 billion, or 89 cents per share, in the July-September period compared with $1.88 billion, or $1.17 per share in the year-ago period.

Revenue grew 4% to $7.35 billion.

After-tax expenses related to the bank’s acquisition of Golden West Financial amounted to 1 cent a common share.

FIND MORE STORIES IN: Revenue | Wachovia | Golden West Financial
Earnings in the third quarter also include a $249 million gain from correcting results from earlier this year.

Wall Street expected earnings of $1.03 a share on $8.02 billion of revenue, according to analysts polled by Thomson Financial. The earnings estimates typically exclude one-time items.

Chief Executive Ken Thompson said the summer’s fixed-income markets “clearly had a disappointing impact on the results of market-oriented businesses, but the strength in our core banking and brokerage businesses continued to serve us very well.”

He added, “we’re taking the appropriate steps to ensure that as markets remain unsettled, we focus intently on actively managing our exposures and controlling costs.”

In the quarter, Wachovia recorded a provision for credit losses of $408 million, up from $108 million, reflecting modest deterioration in credit quality, a more uncertain credit environment and loan growth. Net charge-offs were $206 million, or 19% of average net loans.

Corporate and investment banking operations saw earnings sink 80%, as revenue tumbled 51% to $819 million. The business unit had earnings of $105 million, down from $428 million, driven by the $1.3 billion effect of the market disruption.

Wachovia’s general bank saw earnings jump 33%, with revenue climbing 30% to $4.5 billion. Results were driven by increased loans and deposits and reflected the bank’s October 2006 acquisition of Golden West Financial.

Net interest margin, a measure of the difference between Wachovia’s borrowing costs and lending rates, dropped to 2.92% from 3.03%.

Third-quarter results included the full-quarter impact of Golden West. Results do not include the effect of the bank’s acquisition of retail brokerage A.G. Edwards, which closed on Oct. 1 of this year.

For the first nine months of the year, net income was $6.33 billion, or $3.30 a share, up from $5.49 billion, or $3.43 a share, in 2006.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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Comments: (22)Showing: Newest first Oldest first

Woo.. wrote: 58d ago
ain’t that sumthin….the creditors are having credit problems…wonder what their FICO scores are?

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rainman07 wrote: 78d ago
…isn’t it interesting that all of these financial institutions losing money in the billions don’t seem to affect “Wall Street”….it’s all rosy as long as buy and sell commissions are paid.

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commonpurposecon wrote: 78d ago
Join a credit union, community bank. These International Banks should not be in business. The Global Union goes after countries in trouble through agencies such as the UN and rapes the environment and its human resources. These finaincial institutions help do the job for them.

Recommend | Report Abuse

BEZA2424 wrote: 79d ago
I WONDER IF THEY WILL FIRE ALL THE EXECUTIVES RUNNIG THIS COMPANY ? FAT CHANCE AND IF THEY DID THE OLD GOLDEN PARACHUTE WOULD HELP THEM LAND SOFTLY SO MUCH FOR CONSEQUENCES THEY ARE FOR THE LITTLE GUY

Recommend3 | Report Abuse

brianronjon wrote: 79d ago
This is my own bank- – - I think they should reloacte their headquarters to Dingbatville. The day of reckoning is here. Without a thought for tomorrow; how financially irresponsible can Wachovia ( and many other financial institutions) be to make millions of dollars in mortgage and other loans to OBVIOUSLY unqualified individuals. What happened to common sense when a bank would check your earnings, outstanding bills, etc.? This is the result of Hot-Doggers- – - all they are interested in is the quick bottom line numbers without regard to being able to sustain the unsupportable numbers. God help us.

Recommend3 | Report Abuse

Madd Maxx wrote: 79d ago
Hopped Up Harry wrote: 24m ago
Another NC bank in trouble.
~~~~~~~~~~~~

They are in FL too and I bet that’s what killed them. Stalled projects, foreclosures and hotsy totsy rich stuff like that. One in every 68 homes in this area is under foreclosure.

I’m a renter : )

Recommend1 | Report Abuse

happy1212 wrote: 79d ago
Stop writing those darn ARM’s and you’ll see your bottom line become steady!!

Recommend1 | Report Abuse

Hopped Up Harry wrote: 79d ago
Another NC bank in trouble.

Recommend3 | Report Abuse

TxGulfCoast wrote: 79d ago
Consumers are just stupid or at best ignorant if they keep paying banking fees, interest payments and etc.

As ZoomZoom says, it is easy to avoid them.

Recommend3 | Report Abuse

ZoomZoom Diva wrote: 79d ago
Charlie, if you don’t like the fees, don’t pay them. They are all avoidable, most very easily.

Recommend | Report Abuse

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The point is you can probably get your clients a greater return on their money than what they’re paying on their mortgage. Defer interest on their home and invest money in an avenue where the rate of return is higher than whatever the mortgage rate they’re paying at. Makes perfect sense.

With the equity builder the borrower makes an extra half payment 2 months out of the year. Borrowers can swing that. Easier than sending in 2 payments in 1 month. How many people can do that?

By the way…Wachovia’s neg am cap is 125%. They’ve NEVER had an involuntary recast on their loan (the customer’s payment has never had to be reset so it would pay off in the original loan term.)

Paul’s kind-a dumb – - CC rates? ane you taking cash from equity to pay off credit cards? Negam? do your borrowers qualify for 5.875 or 5.75 with no points – that’s not avail for Cash-out unless you’re under like 70% ltv and these borrowers qualify for MUCH better CC rates than 18% – as a matter of fact I’ll go as far as to say if you’re trapped in an 18% credit card- you don’t qualify for 5.75% first-
You do not understand the significance of a 14 day amortiziation period, you see bi-weekly you think 1 extra payment a year?!?! your poor clients- if you can make a broad generalzation about the needs of ALL of them then you’ve failed in your fiduciary responsibility to them. It’s not magic to stick a FNMA 30yr fixed with a full doc good credit borrower-

I hope YOU’VE learned something here today

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« Qualifying for FHASecure and Refinancing in a Changed Mortgage WorldConsumer Groups Push for Loan “Freezes” »
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Wachovia Follows WaMu, Bank of America Down, Down, Down
Published by Morganat October 19, 2007 in Wall Street and Mortgage News/Insight.
Tags: credit crunch, mortgage mess, wachovia, world savings, write downs.

Wachovia is the latest bank to take massive write down charges for loan loss reverses relating to mortgage lending – adding $1.3 billion to the write down pile in what will be remembered as one of the worst weeks for banks for a long time to come. From Reuters:

Wachovia Corp posted on Friday a 10 percent decline in third-quarter profit, missing forecasts, as the fourth-largest U.S. bank suffered $1.3 billion of write-downs at its investment banking unit.

The drop was the first in six years. It concluded a dismal week for large U.S. banks, which have been battered by increases in bad loans and capital market disruptions that resulted in losses on mortgages and other kinds of debt.

Profit fell 57 percent at Citigroup Inc and 32 percent at Bank of America Corp. It rose 2 percent at JPMorgan Chase & Co and 4 percent at Wells Fargo & Co. Results and outlook for all but JPMorgan disappointed investors.

One thing to keep an eye on is Wachovia’s performance over the next 24 months. Wachovia acquired World Savings last year. World is a large portfolio-lending Option ARM bank that makes Option ARM loans to worse credit risks than other Option ARM players. While most Option ARM lenders require 660 minimum FICO scores World has made a living on writing Option ARM negative amortizing loans to people with 640 credit scores. This could cause a lot of problems for World Savings and Wachovia as these Option ARMs reset to fully amortized payments over the next 24-36 months.

While World Savings may have hedged their bets by being ultra-conservative on appraised value; the latest downturn in housing prices (particularly out west) may end up much greater than even the most conservative predictions of 5 years ago. If these Option ARMs start going bad (which there is no doubt they will) look for Wachovia to suffer more than the others due to their newly acquired exposure via World Savings.

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8 Responses to “Wachovia Follows WaMu, Bank of America Down, Down, Down”
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1 tom stone
Oct 19th, 2007 at 5:22 pm
I have to agree with your opinion of Wachovia.I worked as a new LO in early 05 and recall meeting the AE from world the first time. here is a quote “If the underwriters have a problem with the income,they will put the file on my desk,I’ll give you a call and we’ll fix it” I told him I wasn’t interested in going to prison,and asked how they stayed in business with that kind o business model?He told me that they were “tight” on appraisals,and that real estate always goes up…..A month later y boss asked me if I thought there was a bubble in real estate?and when i said “shit yes!” I found my days free,for a while.

+0
2 Ann
Oct 20th, 2007 at 5:19 am
Again..only the beginning of a long road down financial hits for many of these lenders/banks. I think that 2008 will bring back the days of mergers as many companies become vunerable to take overs. 2008 is going to be the year that this country will have to admit the “R” word. As all industries continue to layoff workforce, consolidate and take financial troubles. I still believe that the unemployment numbers are not reflecting the true state of the economy as other sectors report each week and the reports are not encouraging.

+0
3 Morgan Brown
Oct 20th, 2007 at 10:13 am
Tom – it’s an all too common story, which is the scary part. It will be interesting to see how World’s portfolio impacts Wachovia moving forward.

Ann – you are right we’ll see major consolidation in the banking industry as a result of this mess. I know in Orange County, CA they have made a special request to the state for emergency employment funding for retraining, etc. of all the displaced workers…

+0
4 MattJ
Oct 20th, 2007 at 10:25 am
Morgan-

Do you see Wachovia’s troubles as a problem for stockholders or for depositors? In other words, will they be losing money or failing over this?

+0
5 Scottsdale real estate
Oct 20th, 2007 at 3:22 pm
I think this could spell real trouble for Wachovia. It seems like there will be a tough road ahead for a lot of these lenders who engaged in risky lending practices.

+0
6 S Hallman
Oct 22nd, 2007 at 4:38 am
Morgan, I know you are out in California, but since you are talking about a South Eastern bank in Wachovia – Can you tell us what you hear about Suntrust cleaning up its balance sheet to possibly be bought. Like Ann pointed out, looks like the set up for lots of mergers next year and beyond!

+0
7 Gina G
Oct 31st, 2007 at 6:59 pm
not that big of a deal losing 1.3 billion when you have 753 billion to spare

+0
1 The Feed Bag – Tree Saving Mode
Pingback on Oct 20th, 2007 at 2:49 pm
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Options on a loan only work when a person has extra money to pay. The problem w/ many homeloaners who were put into a loan they can’t afford is that they just don’t have that extra cash — never did.

MY LO stated that I made $14k a month to get my loan to fund. If I made $14k a month, I wouldn’t have a care in the world.

Part of the Disclosure package required for a loan done by a mortgage broker, is the Certification and Authorization form. The following is the first portion of the Certification and Authorization form:

1. I/We have applied for a mortgage loan through ______________. In applying for the loan I/We completed a loan application containing various information on the purpose of the loan, the amount and source of the down payment, employment and income information, and the assets and liabilities. I/We certify that all of the information is true and complete. I/We made no misrepresentation in the loan application or other documents, nor did I/We omit an pertinent information.

2. I/We understand and agree that ___________________ reserves, the right to change the mortgage loan review processes to a full documentation program. This may include verifying the information provided on the application with the employer and/or financial institution.

3. I/We fully understand that it is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements when applying for this mortgage, as applicable under provisions of Title 18, United States Code, Section 1014.

Item #3 of this form is very clear and easy to understand. If you were not provided with this form and/or your loan officer signed it for you and completed the application erroneously, then I would say you have a very good case against the broker….please see a lawyer and get him/her out of our business. If you signed the application and this form, knowing that your income was inflated, then you are guilty of a Federal Crime, per item #3 above.

If the LO is lying about the income and using false documents to substantiate that income, they’re not qualifying the buyer at the fully indexed rate.

I meant moot, not mute

Kevin, ask if saxon is F.H.A. approved, if so, see if you qualify for F.H.A. bailout. This is a full doc. loan, if you can not verify income, contact saxon in writing to request a modification agreement. Good Luck, Don Stephens M.C.A. (retired)

OAG

You have no answers!!!

You said your clients pay the min. payment…so how are they using the equity builder??? If they are making fully indexed payment of 7.543% ..a 30 yr fixed is much lower!!!!!! and as you stated most of your clients can’t qualify A paper…Remember you told us that your clients have no money and are paying 18-21% credit card debt….So in your wisdom you sell them a option arm , pay the min. and neg am the loan…you make me sick!!!!!! Get out the mortgage business!!!!

OAG You can spin circles, twist the facts, give me some bullshit about a 102% effective interest rats, sell this type of loan for the equity builder feature which you can do on any loan….you are the dumb ass !!!!!!

Good luck to you and I hope you do not destroy peoples financial lives!!!!

OAG

You said “ANYONE CAN AND SHOULD BE ABLE TO GO STATED”" You are dangerous!!!!!!! OPEN MOUTH INSERT FOOT!!!!!!!!

Lets see I can put a school teacher with a 660 credit score, 5% down on a 250k purchase, and only makes 55k per year(real salary) but can’t qualify full doc!!! So you submit the stated income of 85k and bump up there assets(BECAUSE IT IS STATED, SO WHY NOT MAKE IT LOOK BETTER) Then you sell them on a option arm!!!!!!!!!!! and do not forget about the equity builder program…THEY BE LUCKY TO MAKE THE MIN. PAYMENT…….How does this loan make sense????? It makes you a great commission!!!!!!!!!! And maybe ruin this persons financial life!!!!!! Great product!!!!

Two words……DUMB ASS!!!!!!!!

One other thing, what is the F.H.A. bailout situation? Do we have to be behind on our mortgage to qualify? Any information on this would be most appreciated. Thank you…

Big Daddy

You answered the question in your response…….”how many people would be in a bad way in California right now if this program would have been used properly/…none” That is the point here, is has not been used properly!!!!! LO selling this product to people who do not understand it, selling it to people just to get them quailfied, selling this loan so people could be a house way out of there price range!!!!AND lo selling it just to make a big commission!!!!!

Big daddy, I do sell this loan..not to very many people because most of people DO NOT UNDERSTAND this product!!!

Also you said ” these people should not have bought there home in the first place” people who had to take a 2/28 with shitty credit and stated product should not have been able to purchase a home in the first place!!!!!! If they had a honest LO, he should have advised the client that they CANNOT AFFORD THIS HOUSE!! and not take the loan application!!!! But most LO put them in an option arm and sold them the min. payment!!!! That are the facts…..CA,FL,NV is the proof!!!

What is your point? That they were misused? No shit genius, did you figure that all out by yourself?
I’m sick of this stupid argument- you don’t like em, good for you- don’t sell them, way to go, but remember numbnuts there are people that do understand them on both sides — So if you don’t mind I’ll continue selling them- Oh By the way The min pay rate can be set as high as the IO option – No deferred interest! – but I’m sure the master minds on this blog knew that.

You don’t like them-
I do-
This is america, you are allowed to be an idiot with your head up your ass-

Go ahead and flame away- I’m not going to read it though so you’ll be like the crazy ass bum that is talkin crazy to invisible beings-
Peace
BDD

Bid Daddy

IO Option yes, BUT AT WHAT RATE????????? The fully index rate!!!!!!!BIG DEAL!!! WHY NOT JUST GET A FIXED 10/20 IO WITH A FIXED RATE FOR 30 YEARS WITH NO FEAR OF RATES GOING UP????? IF RATES GO DOWN REFI, IF IT MAKES SENSE!!!! BETTER RATE!!!

Again I do not see anyone taking advantage of the equity builder option….you stated your clients make min. payment or interest only payment…….where is the advantage???????? of the option arm???? To free up cash to pay off their debt ?????? Because they can’t afford the loan to begin with?????

The 80% of people do not understand them AND PAY THE MIN. PAYMENT….you must have sold the other 20%…I do not think so!!!!!!

How many clients do you have that made the min. payment, neg am the loan, invested the difference are are ahead of the game right now??????

Well said Tom. It is very refreshing to read a post that provides an intelligent overview without any name calling.

Virginia
You are correct…I am sorry for the name calling!!!!

Option Arms are not for the average working American. You’re correct JacMac. Big Daddy, without the name calling, is correct on some of his points. Opt Arms once they are properly explained do just what they do. But the explanations have been usually wrong. Most, not all L.O.s don’t know how this product works. Obviously it’s more than the super low rate. If they can’t explain them, how do you expect the customer to understand them and treat them accordingly? Not everyone is savvy enough to be in them and the good L.O. must know that.

On the surface it appears to be a fancier 2/28 with a 30 year fix component attached to it. For most lay persons, that’s what they are looking at. The negative am part is not an attractive piece but the options are. Focus is on the options is what I’ve heard L.O.s say.

If you are a savvy investor looking to flip or hold property for a limited time, then yes, this is the one for you. Grand moms and most owner occupied customers. No and naahh not really, respectively.

Option Arms are not new. They actual come from the commerical realm, where everything is a risk and anything goes and goes quickly. This instrument reduces the dollar output while maximizing the incoming profits and then sell, sell and do over. If there is lost, it’s emotionally detacted property, not your main home.

Chris/Paul,

I’m right there with you. Thanks for your comments. These loans were marketed mainstream and I don’t understand in the disclosure documents why they just don’t show you the payment on all of the options, rather than just the 1% that lasts a whole whopping month. But, I guess that was the point. Additionally, I’m not in the business so I’m only realy familiar with my own situation but my loan was funded by Greenpoint; and I understand they went out of business. Figures!! I guess this wasn’t a real lucrative venture for them either. Every dog has his day I presume.

The fact that these loans have their purpose does not negate the fact that ‘their purpose’ was not what they were being sold as. You can defend the loan, but the way it was marketed in the last few years is a real contributor to this mess many of us find ourselves in.

Tom

I see it, but 750k a few years ago isn’t quite the same as 750k in a few years. With inflation, it’s much less. I think generally inflation is about 4% a year, it may get worse though if the dollar keeps sinking. In the short term a weakening dollar can stimulate exports and the tourism industry as well as foreign investments. However, (it’s been a while since college) I think most modern currencies are based on the value of the US dollar over time – as gold is no longer the backing of currency. Therefore, the longer the dollar drops in value compared to foreign currencies – eventually the global market will dwindle as well with a greater rate of inflation. Therefore, if a home doesn’t see a 4% gain per year it isn’t really gaining anything. And if your home depreciates 25% in four years from what you paid 4 years ago – your loss is much more than that 25%.

Just a thought, but yes I see that coming.

Chris, I see it coming. Nieghborhoods build up and break down and then build up again. So does the market, I guess. The thing is, can the people who own homes hold on until things go back up again.

And I hear you on the product being good for the right customer. After reading Pauls post on the lender who said he just didn’t have enough resources to go after the LO who submitted fraudulant docs, I think about the only thing we can do is educate the customer as best we can.

I’m still waiting to hear that 1-10 List, What Every Buyer Should Know Before Closing.

Any suggestions any one?

Simple, concise, precise advice that any Joe can understand. Moe can post it on the HOmeowners forum.

Many homeowners going for loan modification, they get the docs and they don’t know if it’s a good deal or not. They just know it’s something. But Brian over on the forum said a lot of people go from a bad position to a worse one, or just buy themselves time, which isn’t good for them in the long run. He also said many lenders put in a waiver in the loan docs.

So I’d love to hear some thoughts from the professionals.

Tom, you said: “I don’t understand in the disclosure documents why they just don’t show you the payment on all of the options, rather than just the 1% that lasts a whole whopping month.”

That was the thing that just floored me when I figured it out. I said, Why in the hell did these morons tell me the loan was 1% — when was the loan ever 1%?!?!?!

Then I saw that it was just for that one month and I was like, Man, have I been had.

You sell a 30 yr loan to a person based on a rate that will only last for one month of the loan?

That’s crazy!!! Insane!!!

JacMac~

Here is a list I drew up for you. It is a little long winded and just an initial draft to start off the “10 things a borrower should know before closing”. I’m sure it needs tweaking and I may have included things or left things out that need to be included. Other mortgage industry professionals should give their input and I’m sure in the end you will have an informative document to provide to people who are looking for financing.

Thanks Chris, for pointing out what I left off…..especially the physical inspection on a purchase…very important. I had a personal experience where I bought a home and used the inspector recommended by my agent. The house was built in 1925 and I wanted to be sure all electrical, plumbing and roof was in good order. It passed with flying colors and when escrow closed, EVERY SINGLE THING HAD TO BE REDONE! I mean new plumbing, new roof and some electrical work. So, I would recommend finding your own inspectors…..

Wow, thanks Viriginia, that’s a great list. Moe, what do you say: Can we post this up in the homeowners forum?

One thing I would add is that definitions should be given for industry terms like ARM, amortization and the like, to make it really an easy read. But it is very good. Thanks again.

If this was given out whenever a person applied for a loan, I think it would make a world of difference, and also help the LO meet their responsibility in informing the customer.

Someone needs to say something about this! http://www.fakepaycheckstubs.com IS THIS LEGAL? No wonder why we have the subprime mess we have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through Quickly SO THAT EVERYONE DOWN THE FOOD CHAIN (from loan processor to the loan officer to the actual lender) can make the commissions they “WERE” making during the booming 90′s!!! Now we are BAILING OUT THESE CROOKS….SOUNDS LIKE the good ol’ 1980′s Savings and Loan BAILOUT DAYS to me! http://www.fakepaycheckstubs.com see it with YOUR OWN EYES!

Eli, come on over to http://www.LoanSafe.org and there are several homeowners with Countrywide that can help you out.

LIKE PAUL SAID EARLIER, OPTION ARMS ARE GOOD FOR CERTAIN BORROWERS. THESE BORROWERS HAVE TO BE A VERY SAVVOY BORROWER/INVESTOR. I was with WAMU when they rolled out the Option Arm, and in our area in NJ we sold A LOT of these loans to very savvoy educated investors. At the time, we didn’t wack them with hard PPP or even soft PPP, we didn’t charge PPP’s period. The investor got in, did what they had to do and got out. We still have the same investors calling us for the same cash out loans they received 5 years ago.

It’s the brokers that sell these loans to the “everyday jones’s”. It’s the brokers that only see the paychecks. It’s the brokers that lie to the homeowners and tell them this is a great loan. In all of the years I’ve been writing mortgages, I’ve NEVER told a client how bad an option arm was for them and they replyed, “oh, thanks for your advice…give me the loan anyway”. it’s up to US as the lenders to educate our borrowers and let them know how dangerous this ARM really is!!!! I know that i’m not a top producer or a millionaire, but there is PLENTY of people that i refused to give the option arm too regardless of how big the paycheck could have been — and as we all know, it would have been a very big check, especially in my area of jersey.

-chris

Hi everyone,

Options Are Good, you are a lost soul !!!!!Hey Chris did you know Mr. J Regan at WAMU …NJ wholesale ???

Paul-

it is a simple concept- certain products fit certain clients. Period.

The reason we are in the mess now is also very simple- unchecked greed…by banks, investors, wall street and yes even the average homeowner in some cases. Not everyone who sold an option arm is a crook and not every investor or buyer was a liar. Unchecked greed consumed the industry and a lot of bad apples jumped in and created the downward spiral we have been in for the past year. The government also had a mandate to the lending industry to put more families into homes (CRA, FHA, Home initiative grants, etc). It was a policy for almost a decade to put people in homes. At almost any cost.

Not every broker was making 3-4 points off the back end with a 3 year prepay. in fact it was very common to make 1-1.25% ysp with no prepay. What you have said in prior posts indicates you had access to the lower quality POA that were offered.

option arms (esp the fix pay variation) are a good choice for the high net worth client looking to leverage….yes i did just say leverage, their money in certain wealth building techniques. It is not for the average person although if structured correctly with discipline it is also a great tool to build their wealth. Granted the average person does not have the discipline so it is clear they are not a candidate for this product.

So the fact you may suggest the option arm product to 1 out of 200 indicates to me your client base is not of the high net worth calibre, which is fine , however to bash the POA as a horrible product is a clueless comment. As a financial planner I am sure you can see the potential benefit of deferring interest to pick up at a later time to offset some capital gains, income or other potential tax liability.

If you look at some of the wealthiest and most savvy business people you will often see the POA as a tool used to properly leverage risk.

Chris- you mentioned you were with WAMU when they “rolled” out the option arm. The option arm was the offspring of the step rate loan from the 70′s.

It is unbelievable that we are seeing lenders and institutions that have been around for 85-100 years being wiped out or exiting the lending business esp when that was their foundation.

we have a crisis of confidence that was created by unchecked greed….. we are going back to the days of quasi government lending- fannie/freddie/FHA (FHA was the first subprime lender). We will be in this cycle until unchecked greed again rears it’ s shameful head and we will see lending again become lax…. As has been said by many economists- financial systems go through cycles of euphoria and fear. We are in the fear cycle and it is unfortunate but more regulation will hold back many hard working families. We need to enforce the laws we have and punish those who were predatory. What is happening now is that the credit market has swung too far towards tightening and until the new FHA standards come out, many quality borrowers will be out of luck for awhile.

I am trying to get a loan modification with countrywide. I am current on my payments. I have sent in my hardship letter and bank statements but, haven’t received my hardship package. I am getting the runaround from them.

Helping? You are joking!

Still looking for a good place to consolidate some bad loans….I did find a good place for information though!

great post thanks a ton

I was siting in bankruptcy court the other day (as a creditor) and watched a debtor stand before the judge awaiting his fate as the lenders attorney was on the conference line and after not making payments for an entire year, the judge chastised the lender for not getting back with debtor to work out a modified mortgage and he was given yet another 6 months! I did a background check to see the property at http://tenantscreeningbackgroundcheck.com and saw that the lender was Bank of America and the home had sold originally for over $350,ooo.

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I wish the loan industry was more active seeking opportunities for lending for medical procedures, we could use the economic uplift removing the excess drag !