More Fed Speak & Oop's
Greenspan on Real Estate: "We do have characteristics of bubbles in certain areas, but not, as best I can judge, nationwide. I do believe that it is conceivable we will get some reduction in overall prices, as we've had in the past, but that is not a particular problem.” Certain areas are major job centers and certain coastal states. He's right, it won't be the government's or his particular problem, it will be the publics problem.
More Uncle Al: “there’s a very significant buffer in home equities at this stage because with most of mortgages being of conforming type with a 20 percent down payment, and even when it’s less, prices since the homes were bought have gone up on average very considerably." 36.6% of new home loans including refi's were structured with adjustable rates. Last time I checked, thats over a 1/3 and that is significant, and here's why.
If you bought a $400,000 home, with a no point, 10% down, 3 year fixed ARM; down = 40,000, loan balance $360,000, P&I @ 4.5% = $1824; @ 5.5% = $2024; @ 6.5% = $2275; @ 7.5% = $2517; @ 8.5% = $2768; @ 9.5% = $3027; @10.5% = $3293. You still have to pay insurance, taxes and PMI.
Your loan is tied to the 3 year Treasury Securities (3.89% today), plus a margin of 2.75%. The maximum rate adjustment per adjustment period (hopefully once a year) is 2% and the ceiling over the life of the loan is 6% over the initial interest rate.
Your home went up to $520,000 the year after you bought it. $600,000 the next, then it started to lose 10% a year for the next three years. After 5 years , you have a home "worth" $420,000, but there aren't any buyers, rates and prices are too high and there's a ton of foreclosed REO's on the market. Oop's.
More Uncle Al: “there’s a very significant buffer in home equities at this stage because with most of mortgages being of conforming type with a 20 percent down payment, and even when it’s less, prices since the homes were bought have gone up on average very considerably." 36.6% of new home loans including refi's were structured with adjustable rates. Last time I checked, thats over a 1/3 and that is significant, and here's why.
If you bought a $400,000 home, with a no point, 10% down, 3 year fixed ARM; down = 40,000, loan balance $360,000, P&I @ 4.5% = $1824; @ 5.5% = $2024; @ 6.5% = $2275; @ 7.5% = $2517; @ 8.5% = $2768; @ 9.5% = $3027; @10.5% = $3293. You still have to pay insurance, taxes and PMI.
Your loan is tied to the 3 year Treasury Securities (3.89% today), plus a margin of 2.75%. The maximum rate adjustment per adjustment period (hopefully once a year) is 2% and the ceiling over the life of the loan is 6% over the initial interest rate.
Your home went up to $520,000 the year after you bought it. $600,000 the next, then it started to lose 10% a year for the next three years. After 5 years , you have a home "worth" $420,000, but there aren't any buyers, rates and prices are too high and there's a ton of foreclosed REO's on the market. Oop's.
Payments were fixed at $1824 for 3 years, then you got jacked. Today's 3.89 is 1.14 above Fed Funds Rate (spreads will widen). Let's be generous and say Fed Funds's Rate stops to 4%, (add 1.25% spread) your index rate is 5.25%, add 2.75% and you get 8% when your fixed period is over. Your 4th year mortgage payment went from $1824 to $2600. Year 5 you will be bumped to 10%, your payment just went to $3100 a month. Oop's.
Its even worse for those who take the 1 year fixed, 100% down & interest only loans. Nuff said.
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