0% financing

drmarkan · Feb 26, 2007

Quote from Matt24SPFL:

The fact is is that mortgage allows you to really leverage your money. While most Americans do not have the discipline to properly use an Option Arm or 100% financing, if used correctly 100% financing is a great tool to really grow your money. I put down money when you don't have to?

Green Point has some great blended rates for 100% financing. Stated stated 700 mid score will get you a blended rate of 7.5 at par for the broker. Of course with 6% seller concessions I just charge all my money up front and let the buyers pay my broker fees.

I usually try to do 100% financing 80% 12 Mat OPtion arm 20% heloc for my clients, as HELOCs are tax deductible.

DTI is a compensating factor in mortgage and it appauls me to see that some lenders will allow up to a 55% DTI (debt to income ratio). This is part of the reason why there are so many foreclosures.

A lender will lend $160,000 to a home buyer on a LIBOR Arm at a 1% note rate for 3 years. Well, that payment is only going to run them around $650/month. The buyer is only making $2500/month but has a car payment and some student loans and at full index rate the DTI will be around 45%. Now with a low mortgage the buyer accumulates more monthly expenses and the DTI is now around 55% 3 years later when the ARM adjusts. The $650/month payment quickly becomes $1,000 and on top of that you know the buyer was paying the minimum payment and now has $6,500 in neg am. Now, if this was during the real estate boom back in the early 2000's, it's no big deal, just refinance pay off debt and treat your house like an ATM machine. Not so much the case anymore.

The underwriter by not really examining so many cases like this really put the economy in a rut. This is especially the case with inflated stated income programs where 'Senior Executive Vice Chairman of Food Inventory" at Mc Donald's (aka Shift Manager) stated that he was one of the best paid SEVC's in Mcdonald's..

It's sad but, the recession is coming and it's going to be bad. Countrywide isn't loving life so much anymore now that they've sold so many LIBOR ARMs and they're not getting their money..

Option ARMS (neg ams) are a dirty business. The only time somebody should be using one is if they are in sales or commission based work and are actually putting over 20% down themselves. It gives them the flexibility they need if they have a bad month (like many mortgage brokers have had as of late

), and they should recognize that they should still be aiming to pay a fully amortized payment. If you are a salaried borrower and are trying to keep your payment down because it is all you can afford, this product should not even be a consideration.

This is where predatory lending should be looked at seriously.

atozcom · Feb 26, 2007

Quote from dandxg:

Another BS program is stated income. Make me laugh. Makes me pissed. If my neighbors tooks these programs, and foreclose, which a couple of them have, it drives down my equity down. Thanks Alan Greenspan you did a great freakin' job.

what is wrong with stated income?

My wife and I are both self employed. State income make it very easy for self employed people in terms of paper work and proving income!!! We have use Stated Income to refinance 3 time in the the last 5 years for our house in Los Angeles. We refinance all the way from a 6.8%/30 years loan down to a 5%/15 years loan.

We have use stated Income to buy a house and a condo in Las Vegas for the last three year. Of course we paid 25% down each time.

If you really cannot afford the payment for the house and lie about your income, whose fault is that!!!

Smart Money · Feb 27, 2007

Quote from Matt24SPFL:

It's sad but, the recession is coming and it's going to be bad. Countrywide isn't loving life so much anymore now that they've sold so many LIBOR ARMs and they're not getting their money..

If a "recession is coming", why can't the Fed just lower interest rates a touch to stave it off? They've got their foot on the gas pedal, and they can push as hard or as light as they choose, right?

SM

Smart Money · Feb 27, 2007

Quote from ElectricSavant:

PMI can be negotiated away...

Ping,

If you're looking for a nice "safe" loan, but you need to keep the payments low, check into a 30-year fixed "LPMI" loan. They will add an extra half percent to the rate in exchange for waiving the requirement for PMI because you can't ever drop PMI. Ultimately, it is a disadvantage since you can't drop it, but if it means the difference between getting your dream home or not getting it, I think that 5 years from now, the rate you're paying will still look low anyway. You'll find that right now, an LPMI (fixed rate) loan is cheaper than a 80/20 loan or a "normal" 30-year fixed loan with PMI added in.

SM

Matt24SPFL · Feb 27, 2007

Quote from drmarkan:

Option ARMS (neg ams) are a dirty business. The only time somebody should be using one is if they are in sales or commission based work and are actually putting over 20% down themselves. It gives them the flexibility they need if they have a bad month (like many mortgage brokers have had as of late ), and they should recognize that they should still be aiming to pay a fully amortized payment. If you are a salaried borrower and are trying to keep your payment down because it is all you can afford, this product should not even be a consideration.

This is where predatory lending should be looked at seriously.

The main problem is that it is not explained right to the buyer. Option Arms are good for the borrowers b/c it puts them in the driver's seat of the loan. They determine how much money to pay towards the principle. If the buyer is a semi smart investor investing in other real estate or index funds (which the s&P 500 has averaged 12.5% over the long haul) then the buyer is in a better situation. The broker's are just selling it as a 1% mortgage and that is downright fraudulant and in my opinion an arrestable offense. You stress to the client ot make the interest only payment but to onlyl make the minimum payment if times are hard. You also mention that it is advisable to make an additional payment towards the principle at least once every quarter.

I do agree tho, if you are W2 and salaried and not educated on smart investing, Option Arm shouldn't be an option..

Matt24SPFL · Feb 27, 2007

Quote from Smart Money:

If a "recession is coming", why can't the Fed just lower interest rates a touch to stave it off? They've got their foot on the gas pedal, and they can push as hard or as light as they choose, right?

SM

Bottomline our country's debt to income ratio is just astronomical and there needs to be a correction. Debt has reached similar numbers to the Great Depression days. At this point, it doesn't matter if the Fed lowers rates or not, debt needs to be paid and the only way is with higher interest rates...

I read an article on here a few days ago that said that nearly 60% of the GLOBAL debt in 2006 was created by the United States.. That's just mind boggling. I know that rich people are borrowers but it's out of control. If you can borrow $1 million from Harry at 5% interest and move it and make 15% interest you're netting 10% interest and that is great. However, the problem comes when you are spread too thin and you owe Harry, his family, and 20 other families money and they all want their money back at the same time because they've realized that you're handling money irresponsibly and they are scared that they might never get their money back.

Matt24SPFL · Feb 27, 2007

Quote from Smart Money:

Ping,

If you're looking for a nice "safe" loan, but you need to keep the payments low, check into a 30-year fixed "LPMI" loan. They will add an extra half percent to the rate in exchange for waiving the requirement for PMI because you can't ever drop PMI. Ultimately, it is a disadvantage since you can't drop it, but if it means the difference between getting your dream home or not getting it, I think that 5 years from now, the rate you're paying will still look low anyway. You'll find that right now, an LPMI (fixed rate) loan is cheaper than a 80/20 loan or a "normal" 30-year fixed loan with PMI added in.

SM

Absolutely, blended LPMI are STRONG right now. Although I never suggest using a 30 year fixed mortgage. We teach families how to invest properly and suggest that it is asinine to put all your eggs in one basket in your house and struggle trying to pay it off. There's good debt and bad debt..

I do agree, prime rate will get near 10% within the next few years in order to pay back all the debt and accumulate enough assets for the central banks.

drmarkan · Feb 27, 2007

Quote from Matt24SPFL:

The main problem is that it is not explained right to the buyer. Option Arms are good for the borrowers b/c it puts them in the driver's seat of the loan. They determine how much money to pay towards the principle. If the buyer is a semi smart investor investing in other real estate or index funds (which the s&P 500 has averaged 12.5% over the long haul) then the buyer is in a better situation. The broker's are just selling it as a 1% mortgage and that is downright fraudulant and in my opinion an arrestable offense. You stress to the client ot make the interest only payment but to onlyl make the minimum payment if times are hard. You also mention that it is advisable to make an additional payment towards the principle at least once every quarter.

I do agree tho, if you are W2 and salaried and not educated on smart investing, Option Arm shouldn't be an option..

Problem is that most people taking this loan are not semi smart investors. They also do not have the kind of money necessary to balance out a return that is beneficial to offset leveraging the money. Unless you are talking about someone who is refinancing and pulling the equity out of the house they already own. New buyers would not have the cash in hand as is suggested.

You are absolutely right that this loan is not properly explained to people. Of course, they for the most part do not want the reality of it explained to them either. Look at the ads on the internet for lower my bills.com. Borrow $150K for $400 a month. The only people answering that ad are people who can not afford to take on a loan like this. I agree that this loan does put the borrower in the driver's seat which is why it can be good for someone who is commission based, but there is a cost to have that flexibility. That being a higher interest rate on a fully amortized or interest only payment. Someone who qualifies for a 5.875% 30 year fixed will have to pay on a 7% rate in an option ARM.