scariest data ever: 33% of Seattle mortgages are IO/neg-am

[deejayoh]

This should clarify... from the same report as Sniglet's slides



True "prime" loans are 45% of the money - and by definition, since they are "conforming" can't have IO/neg-am features.

so what's at risk is the other 55%, and only 12% of the money is in Jumbos.

Neg-Am and IO as % of total $ = 21.6%
Subprime - 4.6%
Alt-A - 12.4%
Jumbo - 4.6%
Prime - 0%

Personally, I would argue that Option-ARM and IO loans are less susceptible to payment default than straight ARMs. A 10 year IO loan locks in a pretty low payment for a long time. The owner may end up under water on the property, but are they are less likely to walk away because they cannot make the payment. I think the riskiest loans are the 2/28 sub prime ARMs, which we are seeing reset right now. I doubt you will see default rates as high as we are seeing on these loans for any other class of lending.

[sniglet]

[S-Crow]

Disagree with the idea that people with short term ARMS (3 yrs or less) with negative am. or I/O will default less than those with longer term I/O ARMS. Those with 5, 7 or 10 yr I/O ARM's are probably going to sell or ride out the market cycle (theoretically) and have a better chance than those with wicked terms of making it through with less damage.

Those with I/O Neg. Am. ARM's and Shorter Terms are generally forced to play their hand when the adjustment period begins. Much more often than not, they are tied to pre-payment penalties which theoretically discourages refinances, but by my experience has done nothing of the sort.

Goes without saying that the Neg. Am. loans are also reducing equity position by the nature of the loan increasing principle to 110% cap of original note.

[sniglet]

[perplexd]

[deejayoh]

[sniglet]

[perplexd]

[biliruben]

The hidden problem with option-arms that nobody seems to be even aware of, especially those who have them, is the recasting process.

but essentially it "catches the borrower up" so that at 5 years, it reamortizes the loan, often increasing payments, and these loans also have rolling recast options that never let the loan get above 110% of the original balance. This can mean large, apparently random increases in mortgage payments.

[sniglet]

[deejayoh]

[The Tim]

[sniglet]

[deejayoh]

[sniglet]