AnotherGuy

Are Cars Loans Our Next Problem?

The key point here is that Chrysler Financial is getting out of Leasing, not Loans, due to the difficulty in managing the additional risk from residual values. A number of banks got out of the car leasing business entirely in 1999/2000 for this reason, particularly SUVs which were leased with very aggressive residuals in the mid/late-90s (and Chrysler's Jeep models were particularly bad).

Predatory Banking Practices Undermining the U.S. Consumer

According to my Proprietary Crackpot Tracking System (PCTS) [TM], Mr. Kee was Stoned Out of His Gourd (SOG) [TM] when he wrote this, and failure of the Government to accept my Totally Understandable and Reasonable Demand (TURD) [TM] to halt foreclosure proceedings against Ed McMahon will result in a solar supernova and a widespread epidemic of the heartbreak of psoriasis.

Why Are ARMs So Expensive?

It seems the lending markets have a reduced appetite ARMs right now, with rates (@3-5 yr) within 1/4% or so of a 30 yr fixed rather than a more "normal" 0.75-0.875% below the fixed. The more "normal" pricing would reflect the lower cost of funding the ARM off the nearer term yield curve (for say 3-5 year ARMS) versus the longer term cost of the 10 year Treasury (off of which 30 yr mortgages are priced).

Nomenclature point of order: Properly speaking, those rates you quote aren't "teaser" rates; teasers are significantly lower rates for a short period of time (like a 1% or 2% rate for the first 3 or 6 months) which then reset to the fully indexed rate, or to an initial fixed rate for some additional interim period. The rates you list are plain old "hybrid ARM" or "initial fixed rate converting to floating" ARM rates.

Your friend should stay away LIBOR based ARMs. Most of the time, the typical pricing (LIBOR+225bp vs. 1-yr Treas+275) is very close to the same rate when you hit the adjustment. But about once or twice a decade when credit markets blow up (like recently) the spread of LIBOR-to-Treasury widens substantially, and if your adjustment happens to occur during such a period you can pay quite a bit more than if you were tied to the Treasury. (Also, now that I look at it I think that is what is wrong with your table, which I didn't quite understand; after a return to "normalcy" at some point that 323 will pull in closer to 275).