My Commencement Speech to the Class of 2014 - 2017
Good morning students, family, friends and faculty,
It is my honor to be here on this fine day, to see you off on your adventure into the mortgage future. When you arrived at the Institution of Home Ownership in 2004 through 2007, recall how you marveled at the expanse of loan programs before you, and the ends you would achieve through them.
I remember vividly how at first you shuddered under the sheer volume of terminology and options --- interest-only, Alt-A, LIBOR, hybrid ARM, index, margin and caps. But oh, how quickly you became facile, nay, confidently assertive, in your wielding of home loan leverage. It was an unprecedented time.
As is common, your freshman euphoria gave way to some very difficult years indeed, did it not? A pensive time in which you were washed asunder, unable to regain the surface of the vast sea into which you'd willingly immersed yourself. Now, with the waters parting again, I hope to share a bit of wisdom at this critical time in your life. Students, home owners, mortgagors, go forth knowing this when you leave these hallowed halls today:
We are on the verge of what is likely to be a period of higher payment shocks on Jumbo and Alt-A programs, especially on loans with 10-year interest-only (I/O) periods.
- Between 2005 and 2007, 30-40% of fixed rate loans that you took on were I/Os, and more than 80% of hybrids ARM programs were I/O.
- Over the past three years, a total of $40 billion of loans in the Jumbo/Alt-A space have already gone through I/O recasts.
- A significant portion of the upcoming recasts will be on fixed rate mortgage (FRM) loans and will undergo payment shocks of approximately 35-40% above their initial I/O payments.
Hybrid ARM (5/1, 7/1, 10/1) I/Os will also recast with large payment shocks, especially on loans where the rate reset and I/O recast was staggered. For these loans, payments will jump 80-100% from current levels.
- I/O loans that are yet to recast constitute about 35% of the outstanding Jumbo and alt-A universe.
- Overall, about $150B is set to recast in the coming four years. Of these, about $50B will be from FRM deals while the rest will be on Hybrid ARMs.
My friends, the world outside awaits and you must act upon it or it will act upon you. If you need my help as your journey continues, call on me. I have watched graduating class upon graduating class, in all manner of economies go forward. Information and education are critical, and we are here to offer our experience and assistance. Many of you will want or need to explore the new world of refinancing. This will take place in a new universe of mortgage guidelines and regulations. Here too, we stand ready to serve.
Graduating class of 2014 through 2017, good luck and Godspeed. And call Rob Spinosa with your California mortgage needs.
Mortgage Loan Originator
NMLS: 22343 CA BRE: 01297944
Cell: 415-367-5959 Fax: 415-366-1590
1058 Redwood Highway, Frontage Road, Mill Valley, CA 94941
RPM Mortgage, Inc - BRE# 01818035 – NMLS# 9472 - CA Bureau of Real Estate, Real Estate Corporation License. Equal Housing Opportunity.