enthdigry_IHB
New member
What are ya'lls' thoughts on this? I was expecting the upcoming ARM resets to put a new wave of foreclosures on the market to further speed up to housing cost re-adjustment currently in progress.
With prime rate at 2%, will this delay the inevitable for the ARM resets coming up?
- Thread starter enthdigry_IHB
- Start date
halfnote19_IHB
New member
The prime rate dropping does not mean mortgage rates will drop.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.
Joe33_IHB
New member
[quote author="halfnote19" date=1209704581]The prime rate dropping does not mean mortgage rates will drop.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.</blockquote>
I think what the first poster is talking about is that when the initial fixed term on an ARM expires, it moves to a floating rate. Usually those floating rates are based on a spread over an index.....usually Libor. The Fed lowering rates can definitely have an impact on Libor.
I think when my loan resets at the end of 2009 it moves to a 225 bps spread over Libor. Last I checked, 30 day Libor was at 2.75%. So if my fixed rate period were to expire today, my current rate would be 5.0%, which would actually be a decline from my fixed rate that I am currently paying.
A year ago, 30 day Libor was at 5.25%. So an ARM that came out of its fixed period a year ago was re-set at 7.5%....today it is at 5.0%. That is what he is referring to...if your ARM expires today, you may actually be better off in the short term.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.</blockquote>
I think what the first poster is talking about is that when the initial fixed term on an ARM expires, it moves to a floating rate. Usually those floating rates are based on a spread over an index.....usually Libor. The Fed lowering rates can definitely have an impact on Libor.
I think when my loan resets at the end of 2009 it moves to a 225 bps spread over Libor. Last I checked, 30 day Libor was at 2.75%. So if my fixed rate period were to expire today, my current rate would be 5.0%, which would actually be a decline from my fixed rate that I am currently paying.
A year ago, 30 day Libor was at 5.25%. So an ARM that came out of its fixed period a year ago was re-set at 7.5%....today it is at 5.0%. That is what he is referring to...if your ARM expires today, you may actually be better off in the short term.
ipoplaya_IHB
New member
[quote author="Joe33" date=1209710494][quote author="halfnote19" date=1209704581]The prime rate dropping does not mean mortgage rates will drop.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.</blockquote>
I think what the first poster is talking about is that when the initial fixed term on an ARM expires, it moves to a floating rate. Usually those floating rates are based on a spread over an index.....usually Libor. The Fed lowering rates can definitely have an impact on Libor.
I think when my loan resets at the end of 2009 it moves to a 225 bps spread over Libor. Last I checked, 30 day Libor was at 2.75%. So if my fixed rate period were to expire today, my current rate would be 5.0%, which would actually be a decline from my fixed rate that I am currently paying.
A year ago, 30 day Libor was at 5.25%. So an ARM that came out of its fixed period a year ago was re-set at 7.5%....today it is at 5.0%. That is what he is referring to...if your ARM expires today, you may actually be better off in the short term.</blockquote>
You are dead on Joe. People will be able to handle their resets easier if LIBOR and the 1-year CMT are lower and the Fed easings probably get the ball rolling on their downtrend trend. On 1/1/07 the 1-year CMT was 5%. By the end of 2007, 3.34%. Now, as of 4/30, it's at 1.85%.
Both CMT and LIBOR have been trending up since mid March though so these ultra low rates are probably done for now... 1-month LIBOR was at 2.88% as of 4/24.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.</blockquote>
I think what the first poster is talking about is that when the initial fixed term on an ARM expires, it moves to a floating rate. Usually those floating rates are based on a spread over an index.....usually Libor. The Fed lowering rates can definitely have an impact on Libor.
I think when my loan resets at the end of 2009 it moves to a 225 bps spread over Libor. Last I checked, 30 day Libor was at 2.75%. So if my fixed rate period were to expire today, my current rate would be 5.0%, which would actually be a decline from my fixed rate that I am currently paying.
A year ago, 30 day Libor was at 5.25%. So an ARM that came out of its fixed period a year ago was re-set at 7.5%....today it is at 5.0%. That is what he is referring to...if your ARM expires today, you may actually be better off in the short term.</blockquote>
You are dead on Joe. People will be able to handle their resets easier if LIBOR and the 1-year CMT are lower and the Fed easings probably get the ball rolling on their downtrend trend. On 1/1/07 the 1-year CMT was 5%. By the end of 2007, 3.34%. Now, as of 4/30, it's at 1.85%.
Both CMT and LIBOR have been trending up since mid March though so these ultra low rates are probably done for now... 1-month LIBOR was at 2.88% as of 4/24.
GrewUpInIrvine_IHB
New member
Completely agree. Yes the resets will happen.. they just won't be painful...(as the indicies stand now).. and accordingly, the tsunami of mortgage destruction and the corresponding reduction in housing costs will be less pronounced... or at least take longer to be realized. If inflation heats up however, we'l be right where we were with massive carnage all over.
lendingmaestro_IHB
New member
[quote author="Joe33" date=1209710494][quote author="halfnote19" date=1209704581]The prime rate dropping does not mean mortgage rates will drop.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.</blockquote>
I think what the first poster is talking about is that when the initial fixed term on an ARM expires, it moves to a floating rate. Usually those floating rates are based on a spread over an index.....usually Libor. The Fed lowering rates can definitely have an impact on Libor.
I think when my loan resets at the end of 2009 it moves to a 225 bps spread over Libor. Last I checked, 30 day Libor was at 2.75%. So if my fixed rate period were to expire today, my current rate would be 5.0%, which would actually be a decline from my fixed rate that I am currently paying.
A year ago, 30 day Libor was at 5.25%. So an ARM that came out of its fixed period a year ago was re-set at 7.5%....today it is at 5.0%. That is what he is referring to...if your ARM expires today, you may actually be better off in the short term.</blockquote>
First of all, the Prime rate is not 2%. The Prime rate is 5.0%.
Second, the FED lowering the discount rate will NOT put downward pressures on LIBOR, it will have the opposite effect. In fact LIBOR has been screaming upwards the last few weeks.
Most 5, 7, and 10 year fixed rate ARMS use either the 6 month or 1 year LIBOR as their index, not the 1 month or 3 month. The current 6 mos LIBOR is 2.965% and the one year is 3.08%. A 2.25% margin is very good. The problem was that banks paid brokers a higher YSP(yield spread premium) if they gave the borrower a higher margin. From my experience the average margin is between 2.5 and 2.75%.
Another factor to keep in mind is the loss of the interest only option on these fixed rate arms. Any 5 year ARM that adjusts this year, whether interest only or not, was originated in 2003. This means they probably have a ridiculously low rate. Let's say they have a rate of 5.5% and there is no difference in rate when the loan adjusts. The monthly IO payment on a 500k loan @ 5.5% is only $2,291.67. Their new P&I;payment will now need to be AMORTIZED OVER THE REMAINING 25 YEARS. Not 30. This puts the payment @$3,070.44 a month.
<strong>$779 more a month! And this is with NO increase in interest.</strong>
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.</blockquote>
I think what the first poster is talking about is that when the initial fixed term on an ARM expires, it moves to a floating rate. Usually those floating rates are based on a spread over an index.....usually Libor. The Fed lowering rates can definitely have an impact on Libor.
I think when my loan resets at the end of 2009 it moves to a 225 bps spread over Libor. Last I checked, 30 day Libor was at 2.75%. So if my fixed rate period were to expire today, my current rate would be 5.0%, which would actually be a decline from my fixed rate that I am currently paying.
A year ago, 30 day Libor was at 5.25%. So an ARM that came out of its fixed period a year ago was re-set at 7.5%....today it is at 5.0%. That is what he is referring to...if your ARM expires today, you may actually be better off in the short term.</blockquote>
First of all, the Prime rate is not 2%. The Prime rate is 5.0%.
Second, the FED lowering the discount rate will NOT put downward pressures on LIBOR, it will have the opposite effect. In fact LIBOR has been screaming upwards the last few weeks.
Most 5, 7, and 10 year fixed rate ARMS use either the 6 month or 1 year LIBOR as their index, not the 1 month or 3 month. The current 6 mos LIBOR is 2.965% and the one year is 3.08%. A 2.25% margin is very good. The problem was that banks paid brokers a higher YSP(yield spread premium) if they gave the borrower a higher margin. From my experience the average margin is between 2.5 and 2.75%.
Another factor to keep in mind is the loss of the interest only option on these fixed rate arms. Any 5 year ARM that adjusts this year, whether interest only or not, was originated in 2003. This means they probably have a ridiculously low rate. Let's say they have a rate of 5.5% and there is no difference in rate when the loan adjusts. The monthly IO payment on a 500k loan @ 5.5% is only $2,291.67. Their new P&I;payment will now need to be AMORTIZED OVER THE REMAINING 25 YEARS. Not 30. This puts the payment @$3,070.44 a month.
<strong>$779 more a month! And this is with NO increase in interest.</strong>
lendingmaestro_IHB
New member
In Addition...
Most PRIME borrowers who purchased with 5% down or less since 2005 did an 80/15 or 80/20. The majority of the first mortgages were ARMS. These will recast in 2009, 2010, and 2011. It doesn't matter if it was interest only or not, there won't be any equity available to fund the refinance.
Most PRIME borrowers who purchased with 5% down or less since 2005 did an 80/15 or 80/20. The majority of the first mortgages were ARMS. These will recast in 2009, 2010, and 2011. It doesn't matter if it was interest only or not, there won't be any equity available to fund the refinance.
FairEconomist_IHB
New member
The current low LIBOR rate will take most of the sting out of ARM resets. If the loan is a fair adjustable, and not a toxic deathtrap, current resets will tend to help borrowers. The bad part is that it puts us into a debt trap. If the economy recovers, interest rates go up, resetting ARMs upwards and driving people from their houses with the associated bank losses due to foreclosure in a weak market. So the economy can't recover until those ARMs get cleared out through amortization, foreclosure, or whatever, and that will take a long time. IMO this was a big part of the Japanese long depression.
GrewUpInIrvine_IHB
New member
[quote author="lendingmaestro" date=1209718796][quote author="Joe33" date=1209710494][quote author="halfnote19" date=1209704581]The prime rate dropping does not mean mortgage rates will drop.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.</blockquote>
I think what the first poster is talking about is that when the initial fixed term on an ARM expires, it moves to a floating rate. Usually those floating rates are based on a spread over an index.....usually Libor. The Fed lowering rates can definitely have an impact on Libor.
I think when my loan resets at the end of 2009 it moves to a 225 bps spread over Libor. Last I checked, 30 day Libor was at 2.75%. So if my fixed rate period were to expire today, my current rate would be 5.0%, which would actually be a decline from my fixed rate that I am currently paying.
A year ago, 30 day Libor was at 5.25%. So an ARM that came out of its fixed period a year ago was re-set at 7.5%....today it is at 5.0%. That is what he is referring to...if your ARM expires today, you may actually be better off in the short term.</blockquote>
First of all, the Prime rate is not 2%. The Prime rate is 5.0%.
Second, the FED lowering the discount rate will NOT put downward pressures on LIBOR, it will have the opposite effect. In fact LIBOR has been screaming upwards the last few weeks.
Most 5, 7, and 10 year fixed rate ARMS use either the 6 month or 1 year LIBOR as their index, not the 1 month or 3 month. The current 6 mos LIBOR is 2.965% and the one year is 3.08%. A 2.25% margin is very good. The problem was that banks paid brokers a higher YSP(yield spread premium) if they gave the borrower a higher margin. From my experience the average margin is between 2.5 and 2.75%.
Another factor to keep in mind is the loss of the interest only option on these fixed rate arms. Any 5 year ARM that adjusts this year, whether interest only or not, was originated in 2003. This means they probably have a ridiculously low rate. Let's say they have a rate of 5.5% and there is no difference in rate when the loan adjusts. The monthly IO payment on a 500k loan @ 5.5% is only $2,291.67. Their new P&I;payment will now need to be AMORTIZED OVER THE REMAINING 25 YEARS. Not 30. This puts the payment @$3,070.44 a month.
<strong>$779 more a month! And this is with NO increase in interest.</strong></blockquote>
OK. One year ago, the Fed Funds Rate was 5.25% and Prime was 8.25%. Today, Fed Funds are at 2% and Prime is at 5%...
One Year ago, the Fed Funds Rate was 5.25% and (1-yr) LIBOR was 5.4%. Today, Fed Funds are at 2% and (1-yr) LIBOR is at 3.1%...
In both cases, I see a 3% drop in Fed Funds, joined by commensurate drops in both the Prime and the LIBOR... of course the individual loans are governed by the respective margin agreements... but yes, the drop in Fed Rates will draw-out the pain of the resets... and is giving anyone with a pulse a good opportunity to either stabilize their situation OR get ready for the carnage to follow an aggressive Fed Increase to stave off inflation in a year or two.
There is another thread that talkes about this.
If you search for interest rate (my search is not working) you will find more than enough info on this topic.</blockquote>
I think what the first poster is talking about is that when the initial fixed term on an ARM expires, it moves to a floating rate. Usually those floating rates are based on a spread over an index.....usually Libor. The Fed lowering rates can definitely have an impact on Libor.
I think when my loan resets at the end of 2009 it moves to a 225 bps spread over Libor. Last I checked, 30 day Libor was at 2.75%. So if my fixed rate period were to expire today, my current rate would be 5.0%, which would actually be a decline from my fixed rate that I am currently paying.
A year ago, 30 day Libor was at 5.25%. So an ARM that came out of its fixed period a year ago was re-set at 7.5%....today it is at 5.0%. That is what he is referring to...if your ARM expires today, you may actually be better off in the short term.</blockquote>
First of all, the Prime rate is not 2%. The Prime rate is 5.0%.
Second, the FED lowering the discount rate will NOT put downward pressures on LIBOR, it will have the opposite effect. In fact LIBOR has been screaming upwards the last few weeks.
Most 5, 7, and 10 year fixed rate ARMS use either the 6 month or 1 year LIBOR as their index, not the 1 month or 3 month. The current 6 mos LIBOR is 2.965% and the one year is 3.08%. A 2.25% margin is very good. The problem was that banks paid brokers a higher YSP(yield spread premium) if they gave the borrower a higher margin. From my experience the average margin is between 2.5 and 2.75%.
Another factor to keep in mind is the loss of the interest only option on these fixed rate arms. Any 5 year ARM that adjusts this year, whether interest only or not, was originated in 2003. This means they probably have a ridiculously low rate. Let's say they have a rate of 5.5% and there is no difference in rate when the loan adjusts. The monthly IO payment on a 500k loan @ 5.5% is only $2,291.67. Their new P&I;payment will now need to be AMORTIZED OVER THE REMAINING 25 YEARS. Not 30. This puts the payment @$3,070.44 a month.
<strong>$779 more a month! And this is with NO increase in interest.</strong></blockquote>
OK. One year ago, the Fed Funds Rate was 5.25% and Prime was 8.25%. Today, Fed Funds are at 2% and Prime is at 5%...
One Year ago, the Fed Funds Rate was 5.25% and (1-yr) LIBOR was 5.4%. Today, Fed Funds are at 2% and (1-yr) LIBOR is at 3.1%...
In both cases, I see a 3% drop in Fed Funds, joined by commensurate drops in both the Prime and the LIBOR... of course the individual loans are governed by the respective margin agreements... but yes, the drop in Fed Rates will draw-out the pain of the resets... and is giving anyone with a pulse a good opportunity to either stabilize their situation OR get ready for the carnage to follow an aggressive Fed Increase to stave off inflation in a year or two.
lendingmaestro_IHB
New member
The Prime Rate is 300 bps above the fed funds rate. LIBOR has no direct link with the FED funds rate. Don't look for those banks across the pond to save our skins. They have their own interests to look after. You've got families with "old money" over there who have been around since our Declaration of Independence.
European banks aren't willing to lend money to each other at really low rates. They are going to have a large housing correction over there as well.
European banks aren't willing to lend money to each other at really low rates. They are going to have a large housing correction over there as well.
IrvineRenter_IHB
New member
Don't expect the FED to keep interest rates low very long, certainly not long enough to save all the ARM resets. If they did, we would have double digit inflation and worthless dollars.
Masterofdamoney_IHB
New member
[quote author="GrewUpInIrvine" date=1209722760]
OK. One year ago, the Fed Funds Rate was 5.25% and Prime was 8.25%. Today, Fed Funds are at 2% and Prime is at 5%...
One Year ago, the Fed Funds Rate was 5.25% and (1-yr) LIBOR was 5.4%. Today, Fed Funds are at 2% and (1-yr) LIBOR is at 3.1%...
In both cases, I see a 3% drop in Fed Funds, joined by commensurate drops in both the Prime and the LIBOR... of course the individual loans are governed by the respective margin agreements... but yes, the drop in Fed Rates will draw-out the pain of the resets... and is giving anyone with a pulse a good opportunity to either stabilize their situation OR get ready for the carnage to follow an aggressive Fed Increase to stave off inflation in a year or two.</blockquote>
While those #'s are convienent at the moment to show parallel movement, don't count on that to be truein the future.
For example, the 1year LIBOR was at 2.47% earlier this month, while the fed funds was at 2.25%. The fed funds was dropped to 2%, and the 1year LIBOR jumped up to over 3%. JUST THIS MONTH ALONE.
That is drastic, opposing movement between the two. Keep in mind that the UK's own mortgage crisis is just getting off the ground now, as well.
Thanks!
OK. One year ago, the Fed Funds Rate was 5.25% and Prime was 8.25%. Today, Fed Funds are at 2% and Prime is at 5%...
One Year ago, the Fed Funds Rate was 5.25% and (1-yr) LIBOR was 5.4%. Today, Fed Funds are at 2% and (1-yr) LIBOR is at 3.1%...
In both cases, I see a 3% drop in Fed Funds, joined by commensurate drops in both the Prime and the LIBOR... of course the individual loans are governed by the respective margin agreements... but yes, the drop in Fed Rates will draw-out the pain of the resets... and is giving anyone with a pulse a good opportunity to either stabilize their situation OR get ready for the carnage to follow an aggressive Fed Increase to stave off inflation in a year or two.</blockquote>
While those #'s are convienent at the moment to show parallel movement, don't count on that to be truein the future.
For example, the 1year LIBOR was at 2.47% earlier this month, while the fed funds was at 2.25%. The fed funds was dropped to 2%, and the 1year LIBOR jumped up to over 3%. JUST THIS MONTH ALONE.
That is drastic, opposing movement between the two. Keep in mind that the UK's own mortgage crisis is just getting off the ground now, as well.
Thanks!