Tuesday, March 22, 2011

Adjustable rate mortgages are back

After reading this article I was thinking I needed an Oy! Hash tag.

However, these ARM's a little different.  Also, we should details coming out for the Qualified Residential Mortgages very soon.  Those new underwriting standards will probably have an impact this mortgage product also.
"I had a client recently who told me that they were going to move in four or five years," said Habetz. "I suggested an ARM. They insisted on a fixed rate. It made no sense but that's what they wanted."
Many buyers remember the so-called toxic or exploding ARMs and how their defaults triggered the mortgage meltdown, helped sink the housing market and usher in the Great Recession.
These loans failed for a couple of reasons. Many were issued to people who lacked the income to pay once the initial years of low fixed rates ended and the interest rate reset higher. Too, the caliber of borrowers was very low.
The 5/1 is an entirely different animal, experts says. Unlike the toxic ARMs, these products are issued to borrowers with high credit scores, making substantial down payments and with assets, debt and income carefully underwritten before approval.
Rosenbaum said he's always featured the 5/1 ARM as the product of choice unless the clients tell him they're planning to live in the home for 15 or 20 years
I would add they are only the product of choice in a appreciating market place.   If you expect home prices to drop, then don't get a 5/1 ARM.  You could be stuck with a house that little equity and a high payment.

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