Gary Kramer

Why Yesterday's Optimism Wasn't Warranted

"I don't understand all of the worry about resets on the 2005-2007 vintage of hybrid mortgage paper. Most of the teasers are at 150 - 200 b.p. Because of Fed easings, LIBOR has moved down 300 b.p. Most of the resets will be LOWER, not higher in rate yet people keep bringing up resets as a negative. DO YOUR HOMEWORK."

I've done my homework - do yours....

I have a brother who took out a 3/1 Option ARM in 2005 (I told him not to do it) at a 3.785% rate. He put 5% down. His mortgage will be resetting in August, and his payments will almost double when his loan resets - because he's been paying the minimum.

He will not be able to keep the house, and he is NOT alone. The headlines are full of people like him (read a post from last week at
www.effor.com/blog/ind...
who will owe more than their house is worth. He will default on his loan - alond with thousands of others.

Your argurment would be correct if we were talking about people who took out traditional ARM's, but millions didn't. Interest only and Option ARM's made up close to half of all mortgages in 2005 through the first half of 2007. The majority of these home squatters will default when rates reset.

Do your homework.

Any questions?
gk