Alt-A resets might not rest higher?

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fumbling_IHB

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The resets for subprime loans were much higher than the teaser rates causing widespread problems in terms of defaults, but might the resets for Alt-A loans be less of a problem due to all the Treasury action taken?



From

Rates Keep Falling



By Vincent Farrell Jr.

12/18/2008 9:00 AM ESTThe 30-year fixed jumbo mortgage rate has fallen decisively below 7%. It was being quoted at 6.91% at the end of Wednesday -- 9 basis points in the bond world used to be decisive. We have been saying that this one rate is the simplest way to judge if liquidity is being freed and whether the velocity of money is starting to pick up. It's overly simplistic but accurate enough for a quick, simple check, and while this is early-stage and tentative, it is good news.



Look for three-month LIBOR to continue its fall. It was quoted at 1.58% on Wednesday morning's fixing, and I see 1% in the near future. I was told "60 Minutes" ran a critical segment on the problem of Alt-A mortgages (and God knows the idiots who dreamed this category up created a lot of problems) that will have interest rate resets in 2009 and 2010. While it could be a problem, I would want to know the initial teaser rate -- if they reset against all-time-low-yielding 10-year Treasuries at 2.1% or record-low LIBOR at 1.58%, some interest payments could go down!
 
If the householder uses a regular I/O ARM, after the 5 or 7 years, when they reset, do they also convert to an amortizing loan, or remain I/O?



Thanks
 
Most convert to an amortizing loan, but the payment is even higher than it would be normally. For instance if you had a 5 year interest only loan your payment would jump to the P&I payment for a 25 year fixed, not a 30 year fixed.
 
[quote author="fumbling" date=1229711928]The resets for subprime loans were much higher than the teaser rates causing widespread problems in terms of defaults, but might the resets for Alt-A loans be less of a problem due to all the Treasury action taken?



From

Rates Keep Falling



By Vincent Farrell Jr.

12/18/2008 9:00 AM ESTThe 30-year fixed jumbo mortgage rate has fallen decisively below 7%. It was being quoted at 6.91% at the end of Wednesday -- 9 basis points in the bond world used to be decisive. We have been saying that this one rate is the simplest way to judge if liquidity is being freed and whether the velocity of money is starting to pick up. It's overly simplistic but accurate enough for a quick, simple check, and while this is early-stage and tentative, it is good news.



Look for three-month LIBOR to continue its fall. It was quoted at 1.58% on Wednesday morning's fixing, and I see 1% in the near future. I was told "60 Minutes" ran a critical segment on the problem of Alt-A mortgages (and God knows the idiots who dreamed this category up created a lot of problems) that will have interest rate resets in 2009 and 2010. While it could be a problem, I would want to know the initial teaser rate -- if they reset against all-time-low-yielding 10-year Treasuries at 2.1% or record-low LIBOR at 1.58%, some interest payments could go down!</blockquote>


The 1 YEAR LIBOR, which most LIBOR ARMS are indexed to, is 2.766%.
 
[quote author="fumbling" date=1229711928]The resets for subprime loans were much higher than the teaser rates causing widespread problems in terms of defaults, but might the resets for Alt-A loans be less of a problem due to all the Treasury action taken?



From

Rates Keep Falling



By Vincent Farrell Jr.

12/18/2008 9:00 AM ESTThe 30-year fixed jumbo mortgage rate has fallen decisively below 7%. It was being quoted at 6.91% at the end of Wednesday -- 9 basis points in the bond world used to be decisive. We have been saying that this one rate is the simplest way to judge if liquidity is being freed and whether the velocity of money is starting to pick up. It's overly simplistic but accurate enough for a quick, simple check, and while this is early-stage and tentative, it is good news.



Look for three-month LIBOR to continue its fall. It was quoted at 1.58% on Wednesday morning's fixing, and I see 1% in the near future. I was told "60 Minutes" ran a critical segment on the problem of Alt-A mortgages (and God knows the idiots who dreamed this category up created a lot of problems) that will have interest rate resets in 2009 and 2010. While it could be a problem, I would want to know the initial teaser rate -- if they reset against all-time-low-yielding 10-year Treasuries at 2.1% or record-low LIBOR at 1.58%, some interest payments could go down!</blockquote>


The following is why low interest rates will not make much difference in the number of foreclosures to come:



<em>" 12th percentile writes:

I recommend reading the whole report.



CR - you get credit on slide 47 for comments on CRE



Here are some scary numbers about Option Arm recasts from the report



1 - 83% of Option ARMs from ?04-?07 were no doc liar loans



2 - 65% of Option ARMs are currently underwater



3 - The average Option ARM payment increases 63% upon recast.



4 - Many of these loans allowed you to pay less than interest so the loan value will be 110-115% of the original purchase price."</em>
 
[quote author="awgee" date=1229864735][quote author="fumbling" date=1229711928]The resets for subprime loans were much higher than the teaser rates causing widespread problems in terms of defaults, but might the resets for Alt-A loans be less of a problem due to all the Treasury action taken?



From

Rates Keep Falling



By Vincent Farrell Jr.

12/18/2008 9:00 AM ESTThe 30-year fixed jumbo mortgage rate has fallen decisively below 7%. It was being quoted at 6.91% at the end of Wednesday -- 9 basis points in the bond world used to be decisive. We have been saying that this one rate is the simplest way to judge if liquidity is being freed and whether the velocity of money is starting to pick up. It's overly simplistic but accurate enough for a quick, simple check, and while this is early-stage and tentative, it is good news.



Look for three-month LIBOR to continue its fall. It was quoted at 1.58% on Wednesday morning's fixing, and I see 1% in the near future. I was told "60 Minutes" ran a critical segment on the problem of Alt-A mortgages (and God knows the idiots who dreamed this category up created a lot of problems) that will have interest rate resets in 2009 and 2010. While it could be a problem, I would want to know the initial teaser rate -- if they reset against all-time-low-yielding 10-year Treasuries at 2.1% or record-low LIBOR at 1.58%, some interest payments could go down!</blockquote>


The following is why low interest rates will not make much difference in the number of foreclosures to come:



<em>" 12th percentile writes:

I recommend reading the whole report.



CR - you get credit on slide 47 for comments on CRE



Here are some scary numbers about Option Arm recasts from the report



1 - 83% of Option ARMs from ?04-?07 were no doc liar loans



2 - 65% of Option ARMs are currently underwater



3 - The average Option ARM payment increases 63% upon recast.



4 - Many of these loans allowed you to pay less than interest so the loan value will be 110-115% of the original purchase price."</em></blockquote>


Blah... you think those stats are scary? Try 05-07 vintages of option ARMs that are already 30%-40% delinquent. This is before the reset/recast date... so the ugliness has only begun.
 
Bah, that recast is in the base amortizing payment and doesn't reflect the real recast jump from the MINIMUM payment to the fully amortizing payment.
 
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