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Products -- why are you afraid???

By
Mortgage and Lending with Pulaski Bank

I have been talking to realtors left and right about products.  There is no out side the box products out there right now.  You have FHA, VA, USDA, Conventional Fannie and Freddie, and JUMBO.

Stated, NO DOC, Bank Statement, Neg Am, sub-prime arms with high margins,etc. are gone.

I have talking to realtors about doing a 5/1 arm for their first time home buyers. I will generally get the same response. " What an arm that is what started this mess in the first place. " 

A Conventional or FHA arm has a margin of roughly 2.25% To figure out an arm rate you take you index ( at the time of change ) plus your margin.  The problem with the people that are going into default with their arms, are because of the margins.  The sub prime arms had margins that were ( if I remember correctly ) 5% - 8%, With that margin of course you will have an issue.  Many of those clients rolled the dice with their loans in that idea that they could refinance after two years. The dice came up snake eyes, there is no programs to go back into.  You used to be able to do a cash out refinance, then two years later if the bad credit wasn't fixed you could refinance that arm, back into a new arm without getting hit with the arm adjustment. Yes you would have had additional closing cost, but you would still have an affordable payment. 

 

Another item to think about is Small Local Community Banks. Do you think they did bad loans that went into default.  The had balloon loans for a reason.  After three years you needed to relook at your loan to make sure it was the right fix.  Think about the main difference between that and an arm, either way you needed to refinance at your end of your fixed period.

 I am done talking about the past.

 

We need to focus on the future.  So when I have been talking to agents about a 5/1 Arm FHA they look at me as way are you looking to me about this program.  Ask yourself this, who many first time home buyers will keep that first home for more than 5 years. Probably very little. The nice thing about doing a FHA Arm is that you can do a Streamline refinance, ( a refinance without additional assets or income verification -- rate and term only NO CASH OUT )

Also on Jumbo loans I have been telling agents that we just came back out with Interest Only Arms.. Agents are telling me the same question, WHY??  An Interest Only Arm that we offer is not a Neg Am, If you have a client that is putting down a min. of 20% they know how to manage their money.  They will not let that house go into default.  If you are buying a $800,000 house you are putting down $160,000. DO you actually think that they could manage their money.  The old Chevy Chase Cashflow Arms or World Savings Equity Builders those are were your issues.  When you only put down 5%-10% on a Neg AM loan, within a short period of time you were upside down on your loan, what was the benefit of not letting that house go into default??  It was cheaper to let it go than convert to another product, oh yeah you were upside down you couldn't get into another product.

 

SO here is my bottom line. If you have a client that is looking to purchase or refinance, give me a call and let me tell you options.  Arm rates are typically 1% lower than the fixed rate for the same person.

 

You can contact me at rcardozo@metlife.com or on my mobile 913-710-5626

Thanks

Ronald Cardozo