The "subprime mortgages" and ARM's are not dead.

[Renew Deal]

I was at the gym the other night and CNBC was on one of the tubes. The show was hosted by a woman at around 8PM EST. They were discussing interest rates possibly going to 0%. One of the guys was saying that people "should consider a risk" and take a 5 year ARM. He figures that rates won't go much higher than 5% within 5 years.

I couldn't believe the discussion. I wanted to jump through the screen and slap the shit out of this guy. He's exactly the type that brought this chaos upon us. Now he wants to start it all over again. But these are the consequences of the bank "bail-out." The guilty parties have learned that there is absolutely no accountability in this country. They'll just keep doing it.

Thankfully the talking head stressed that ARMs are a really bad idea and to make sure that you get a fixed rate loan. Still, the fact that these ARM advocates still exist is shocking and disturbing.

The point of the bailout: Delay the inevitable. Don't solve the problem. And it's going to be worse in the long run.

[slackmaster]

1. Sometimes an ARM with a low intiial rate makes sense

If you own a property that you intend to sell within two or three or five years, you can save a lot of money by taking out a loan with an interest-only option or one that has a very low fixed initial rate then becomes adjustable.

You have to enter into the deal with knowledge and a sound plan.

As for subprime loans - The alternative to having them available is a situation in which only people with good credit right now and cash on hand right now can buy homes. Subprime loans have helped a lot of people get into the housing market.

[tammywammy]

6. Exactly.

These are option that are good for some, but definitely not all.

[Warpy]

2. Fortunately or unfortunately, depending on your point of view,

lenders have become increasingly gun shy and are not writing paper for anyone who can't afford to pay that 5% when the ARM adjusts upwards from the teaser rate. In fact, they're barely approving mortgages for people who could afford 10%.

Now that they can't shop the paper around to hedge funds, they know they'll either have to write good paper for Fannie or Freddie or eat it themselves. Since they're already eating the regurgitated hedge fund paper, they're in no mood to risk a dime on some wise guy's mortgage scheme.

However, those things will be back as soon as the economy improves unless they are banned by law.

[BR_Parkway]

3. Maybe - if I could handle the payment at the max it could adjust to

and always made that as my regular payment, then any interest rate fluctuations would only affect how much additional principal I was paying off on the loan ahead of schedule. Would depend on the exact terms of that deal vs something else so you could compare all the costs for both side-by-side.

And certainly not a recommended option for the financially brain dead like my daughter who continues to claim that she doesn't pay taxes, she gets money back. Never have been able to get it to sink in that she's only getting a refund for what she overpays every year. A lovely young woman in so many other ways, but math and her were never close companions.

[Phred42]

4. Gambling. How many times to people have to get burned to learn?

:spray:

[gizmo1979]

5. Wells Fargo called me today

offered 4.75 no closing costs.That's fixed rate,but I thought they were done with no closing costs?

[slackmaster]

7. That's very interesting - That tells me two things

1. Wells has money they are itching to lend, and

2. gizmo1979 has stellar credit - Congratulations to you.

[gizmo1979]

8. Fact is my credit is not over 700

it was only in the 690's 6 months ago.So it's not stellar.

[Tesha]

9. Do you have an existing Wells Fargo mortgage?

Back in the re-fi heydays, we had an existing Wells-Fargo mortgage
at something like 8ish percent, were way ahead on repaying it, and
were getting re-fi offers from everybody and their brother at various
rates around high fives and starting to consider them. Then Wells
Fargo wrote to us saying they'd do a re-fi at 5% even and with no
closing costs or points; we immediately said "Sure!".

Apparently, they wanted to keep us as their customer rather than
lose us to another mortgage provider ;). So a couple of weeks
later, we had a new mortgage. (And no, we *DIDN'T* take any
cash out of the deal, even though Wells Fargo would have been
happy to see us do that).

Tesha

[gravity]

10. There is nothing wrong with ARM's and subprime loans

If used in moderation for their intended purposes.

The problem was that people who shouldn't be using mortgages started taking them out.