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Surprise: 'Toxic' Mortgages Are the Best

By Michael Mullin

Mortgage and Lending with Advantage Mortgage Inc NMLS 1770599 , Originating loans in CA, OR and WA. NMLS 11911

September 26, 2007 03:20 PM

First, a disclaimer - I copied the title of this post from an article in Business Week (source provided below).

It will be interesting to see how much press this article gets in light of the recent hysteria over "toxic" mortgages and how their use is the cause of the current mortgage and housing crisis.

In short, the artilce cites a new study by professors at Columbia and New York universities conclude that the "best" mortgage is a fully negative amortization ARM loan - better known as the Pay Option Arm.

The study is 65 pages long but here's my two cents - if you are a SAVER you should seriously consider refinancing your home loan into one of these ARM programs. If you are a SPENDER it would be a disaster for you to do so.

Do you have any clients or friends in Option ARMs? If you live in the state of Washington (and particularly Spokane, South Hill, Spokane Valley, Nine Mile Falls, or Suncrest) or the state of California I offer a complimentary ARM Review that will help them understand if they have the best ARM given today's marketplace. Our ARM Cost Analysis software can demonstrate the relative benefits of an ARM versus your current mortgage. Many people find that utilizing an ARM loan correctly can help them pay off their mortgage years early while building their retirement savings at the same time.

To read the BusinessWeek.com article:
http://www.businessweek.com/bwdaily/dnflash/content/sep2007/db20070921_855992.htm?chan=search

To download the study:
http://www1.gsb.columbia.edu/mygsb/faculty/research/pubfiles/2686/optimal%20mortgage%20design.pdf

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Brett Noel

Keller Williams - Paso Robles, CA

Interesting , It seems the streets think arms are the cause ?

Sep 26, 2007 03:24 PM

Lewis Poretz

Apex Home Loans - Annapolis, MD

Business Development Manager

i have to disagree with you - in my opinion - pay option arms are going to hit the market harder than any sub prime loans....... i refuse to sell these loans...

Sep 26, 2007 03:26 PM

Richard Goates

Apex California Realty - Redding, CA

Broker 01251781

Thanks for sharing this article. I noticed that it is really for people who are "Rationale" So with that definition I would say that maybe about 5-10% of the people out there would be well suited for a product like this one? In some area's of the country that may be higher and in some other area's much lower!!

Any studies out there that correlate IQ with the loan that is eventually picked?

Regards,

Rick

Sep 26, 2007 03:28 PM

I do know one thing for a fact....that there were many lenders getting very rich for a short amount of time on peddling these loans. I had no idea that a lender could make SO MUCH on those loans....no wonder they were pushed so much....the sad fact is that anytime that there is that kind of money to be made there will be some....granted not all or even half but some that will put someone into one of those just for the commission.

Hey I am all for making a living folks...don't get me wrong but let's put the clients best interest FIRST while doing it and then it won't come back to haunt you later....

This response will only offend the ones that know they did something wrong in the last 2 years putting people into these for the money!!

Sep 26, 2007 03:33 PM

Michael Mullin

Advantage Mortgage Inc NMLS 1770599 , Originating loans in CA, OR and WA. - Bend, OR

NMLS 11911 - Loan Originator, FHA, VA, USDA, Conv

Lewis - you could be correct. My thought is that for the most part the applicants involved in the option arms were generally of a higher credit and income level than the subprime borrowers.

Mike

Sep 26, 2007 04:21 PM

Rick, there are obviously many different scenarios to consider and it is difficult to make a "general" statement about a particular loan product. However, I see plenty of borrowers who have a regular savings pattern over a long period of time. I also have clients right now that want to put $200k down on a $300k home. Is that really prudent in light of how they could put that cash to work in another asset?

"I do know one thing for a fact....that there were many lenders getting very rich for a short amount of time on peddling these loans. I had no idea that a lender could make SO MUCH on those loans....no wonder they were pushed so much"....I'm not sure how you consider that a fact Rick. Almost every loan product availalbe to the mortgage broker (at least until recently) had 2-3% YSP available. The option arm didn't offer any more. I think a more accurate way to put it is that considering the borrower probably never had a detailed understanding of the margin and index they did not realize they could have had a lower margin had their broker not been making so much.

"Hey I am all for making a living folks...don't get me wrong but let's put the clients best interest FIRST while doing it and then it won't come back to haunt you later...." Yep! That's why those of us that behave that way will survive and prosper Rick.

By the way - I have NEVER personally originated an option arm for a client (although I did for myself) in my 17 year career. However, I have seen some specific cases where my clients probably should have taken one and I will be educating myself to better understand how these products can further a client's financial well being.

Sep 26, 2007 04:31 PM

Surprise: 'Toxic' Mortgages Are the Best

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