I just read an article on Money.com about the rate of defaults expected over the next couple of years on Option Arm mortgages. They're expecting the rate of defaults to double over the next couple of years. I can't say I'm the leat bit surprised to hear this. When I was still living in Irvine, CA, I saw many people taking advantage of these loan products. The so-called "option" aspect is that you can choose to pay either a negative amortization payment whereas you're not even paying the entire amount of interest due on that given payment and you increase your indebtedness on the loan, or you pay an interest only payment, or you pay a "normal" payment whereas some money goes towards paying down the principal. I knew years ago that this type of loan product was out of control in places like Southern California. People were buying more home than they could afford. With negative amortization payments or interest only payments, you're not paying down the principal and when the market drops...you're in trouble as you can't refinance because the home is worth less than what you owe on it. The party is over and now the default rate on these is expected to double. I saw this coming and all I can say is that I'm grateful that I bought a home with a 30 year fixed mortgage, with payments I can afford!
Preferred Home Brokers - Brea, CA
Broker Associate ,CRS,GRI,SRES, Brea,CA, Orange Co
Hi Kirk,
Interesting. Didn't see the article myself, but we've been talking about this ourselves within the office for a while now. There have got to be so many loans getting ready to re-set in 2009/10, from those record sales in 2004/05. BTW, I'm in the OC myself.
Sep 06, 2008 05:35 PM
Law Office of Richard V. Foster - Henderson, NV
Broker (58356) - ABR/M, CREN, CRS, GRI, RRG, SFR
And thereare still more to come after this... There were so many bad loans that were sold and it will take a long time to get them out of the system. The REO business will be on the climb for some time to come. And if you have any issue note the news that Fannie Mae and Freddie Mac are likely to be taken over by the feds this comming week...
Sep 06, 2008 07:29 PM
Van West Realty - Greenville, SC
Co-Founder/Co-Owner
I don't miss living in Orange County and hearing from all our friends and neighbors who were sitting on time-bombs with these types of mortgages. I'm glad we got out when we did!
Sep 07, 2008 12:26 AM
Agentspayingforward.com - Sacramento, CA
Hi Kirk:
The company I work for steadfastly refused to do these loans, which put some of us at a competetive disadvantage. In some instances these loans made sense, especially if you have somebody who has "seasonal" income. The loans also made sense in other instances as well, but they certainly weren't right for the vast majority who took them out. I've been a lender for over 20 years, and have done probably no more than 20 of these loans.
As an industry many did a poor job of explaining the risks (who knows why?), and how to effectively use these programs. Companies like Wa. Mu, Wachovia, and Countrywide originated billions of these loans, and, based on what you see, the same companies may cease to exist (Countrywide of course already got bought). The "time bombs" that are coming represent a potential challenge for an owner, but also represent an opportunity for somebody to purchase a home far cheaper than several years ago (the silver lining).
The lessons with these loans are: know what you are getting; work with professionals who are versed in the pluses and minueses; and work with professionals who look out for your wellbeing and not just their commissions. The lessons I mentioned are common sense and have always made sense, but have been ignored time and time again: the option arm programs are just another example of that unfortunately.
Sep 07, 2008 01:40 AM
Rainmaker
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Kirk Westervelt
Kirk Westervelt, Broker In Charge, Van West Realty - CDPE - Short Sale Agent - Home for Sale - Greenville, Simpsonville, SC
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