Adjustable Rate Mortgages (ARM's) have existed since the 1980's but only recently have they been described as "toxic ARM's." The subprime variety has more dramatic increases but why don't they just refinance out of these bad loans? What's changed?
Stated income loans may be referred to as liars loans implying that incomes may be over stated. Qualifying for payments above your capacity to pay become worse when they recast to higher rates. Lending guidelines have tightened making some unable to qualify for this loan type any longer. Some ARM loans have been eliminated forcing some owners to refinance into higher fixed rate mortgages at the same time lending guidlines are tightening.
100% financing can be great in a rising propety value market but can be dangerouse in flat or declining property values if you need to move or refinance. Combining 100% financing with an adjustable rate loans & overstating your income is a toxic mix.
Some of these borrowers have been painted into a corner. They cannot make the higher payment, sell without bringing money to close or use equity to buy down their rate to lower payments.
Consider refinancing to a fixed rate loan and buying down the permanent rate to match your ARM's rate before recast. Discount points are prepaid interest & likely tax deductible. Consult your tax preparer for your situation.
Greg Z & www.MortgageAdvisor.info
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