Volatility.

In Chem class we learned volatility was about how fast something went from liquid to vapor.
"The higher the volatility the faster our beaker of blue stuff evaporated."
I know that because that's exactly what Susie D. (my lab partner) wrote down for Problem 17 on the big test.

And that's exactly what I wrote too. Ok, so I was a "team" player.
And then that led to Mr. Wisner bringing in my parents for a... shall I use the word, "Volatile" meeting?

So there I was, hopelessly wishing that any of the participants, Mr. Wiz, my parents, or even myself, were a little more volatile.
I for one certainly would have liked to have vaporized at that moment in time.

Flash forward to my wine sommelier moments...
"Next we want to gently swirl the wine in our glasses. This volatizes the esters of the wine. This aerates the wine and releases its aroma and bouquet."
You can imagine it was a much more pleasant 'volatile" time in my life.

Equity traders, option traders, and the like speak glowingly of volatility.
To them volatility is a chance to get in or out of the market or stock.
Long or short, call or put, if a stock is flat or sideways it's hard to make money on it.
Volatility, financially speaking, "refers to the standard deviation of the change in value of a financial instrument with a specific time horizon."
Thank you Wikipedia

If you are on the wrong side of a volatile trade you could see your whole portfolio go to vapor.

Now let's talk about Volatility in Mortgages.
This is deadly stuff.
Yes, rates go up and down that doesn't change.
Sometimes the rates go up and down with greater speed and velocity.
There's another V word.

But the warning I want to get across is this.
Small moves in rates, combined with the ever tightening credit window, combined with higher and higher debt, combined with flat or minimal appreciation rates will yield a highly charged, highly Volatile marketplace.

There are people I come across each and everyday who have questionable loans for their particular goals.
2/28, 3/27. 3/1 ARMs, POAs, Interest Only's -
Don't get me wrong, they are all good loans for the right person at the right time, but so often I see them with the wrong person at the wrong time.
I see volatility.

I have someone who came to me to refi last week.
They have minimal credit,
they have to "state their income",
credit cards are close or at the limit,
they have a new boat payment,
just a little money in the bank,
Oh, and their loan amount now is the same as their home value.
All they want to do is get into a loan that will not adjust. (Theirs is about to start adjusting)

They up the Creek and there is no Fixed Rate Paddle, or any paddle for that matter.

You could say they are on the extreme side.
But I see many, many other borrowers just a couple steps away from them.
Borrowers who over the last 2 or 3 years have grown very comfortable with a Minimum Payment, or an Interest Only payment.
When it's time for them to get into something fixed - even with good credit, good income, there may no longer be a fixed paddle available.
It's not all about rates, the credit window has volatility too.
Right now with the sub prime issues the volatility of the credit window is high. And that window is closing!

When it comes to mortgages:
Volatility in appreciation,
Volatility in interest rates,
Volatility in the underwriting guidelines,
Volatility in the credit window,
Volatility in pretty much anything can kill.

Be careful out there.