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Another Us Post: Negative Amortization, Anyone?

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Has anyone heard of these Option ARMs being offered by lenders in the UK?

Discussed here: http://www.msnbc.msn.com/id/14584569

In order to get the $800,000 house he bought early last year in California’s Silicon Valley, Joe got an “option ARM,” an adjustable-rate loan that lets him choose from a variety of payments every month. The smallest payment included no principal and less than 100 percent of the interest due. The unpaid interest was tacked onto the principal, creating “negative amortization.”

Seems like it's one step further than IO. You don't even need to pay the full interest payment, and the left-over amount gets tacked onto the principal. Jebus!

One thing which puzzles me is that the Exotic Mortgages/Rate Reset panic in the US seems to be hitting the headlines AFTER we have already had our fluff about it. Ditto with the increace and vulnerability to foreclosure.

Banks and mortgage companies sent warning notices to more than 20,000 homeowners earlier this year, telling them they were in danger of foreclosure. That’s an increase of 67 percent, the biggest one-year jump on record.

Does this mean our press is more with it, or our housing market is in a more advanced state of decline than the US?

Cheers

TC

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Guest wrongmove

Has anyone heard of these Option ARMs being offered by lenders in the UK?

Discussed here: http://www.msnbc.msn.com/id/14584569

Seems like it's one step further than IO. You don't even need to pay the full interest payment, and the left-over amount gets tacked onto the principal. Jebus!

One thing which puzzles me is that the Exotic Mortgages/Rate Reset panic in the US seems to be hitting the headlines AFTER we have already had our fluff about it. Ditto with the increace and vulnerability to foreclosure.

Does this mean our press is more with it, or our housing market is in a more advanced state of decline than the US?

Cheers

TC

These neg am mortgages are amazing - I have certainly never come across them here, but they account for a good chunk of the US market: http://www.energybulletin.net/19420.html

At the end of 2003, 1% of Washington Mutual's (WaMu's) option ARM (adjustable rate mortgage) loans were in negative amortization (the borrowers were borrowing more money each month, not even paying enough to pay the monthly interest charge in full). At the end of 2005, 47% of WaMu's option ARM's were in negative amortization (55% by value of the loans).

Staggering stuff (this includes people who are behind on payments)

also,

* 32.6% of new US mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000

* 43% of first-time home buyers in 2005 put no money down

* 15.2% of 2005 buyers owe at least 10% more than their home is worth

* 10% of all home owners with mortgages have no equity in their homes

* $2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007

Makes UK look positively restrained !

ps, love the avatar ! :P

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Guest Shedfish

so in an increasing order of danger -

Endowment mortgage

IO Mortgage

Negative Amortization / MEWing on an IO (a tie?)

and on FirstRung today -

"In the filing, WaMu confessed it had bungled the underwriting for option ARMs, improperly measuring some of its customer's debt-to-income ratios for 2004 and most of 2005. As short-term interest rates rose in those years, the company disclosed, the interest rate at which lenders qualified for loans "was not adjusted upward, which resulted in loans being made to borrowers who were qualified based on debt-to-income ratios calculated using an interest rate below" the prevailing interest rate.

In other words, the applicants looked more credit-worthy than they really were. Talk about violating Rule No. 1 in lending.

Of $43 billion of such loans, WaMu discloses, the unpaid balance for borrowers who were qualified at below the market rates totaled $30 billion.

The bank says it fixed the problem in October. It disclosed the problem in its annual filing this spring, but outside American Banker, few in the media or Wall Street picked it up."

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Has anyone heard of these Option ARMs being offered by lenders in the UK?

Discussed here: http://www.msnbc.msn.com/id/14584569

Seems like it's one step further than IO. You don't even need to pay the full interest payment, and the left-over amount gets tacked onto the principal. Jebus!

One thing which puzzles me is that the Exotic Mortgages/Rate Reset panic in the US seems to be hitting the headlines AFTER we have already had our fluff about it. Ditto with the increace and vulnerability to foreclosure.

Does this mean our press is more with it, or our housing market is in a more advanced state of decline than the US?

Cheers

TC

It's quite common for lenders to 'roll-up' interest on development finance. This tends to be short term finance ie whilst the property is developed and then sold. I can't believe any bank would be crazy enough to do this on a home loan. Those Americans, eh :P

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they started to appear just before the pop in the UK last time (1989 or thereabouts). They were called 'low start' mortgages and interest was rolled up until such time as your rapidly increasing salary could actually cope with the debt you had taken on. Quite a few of the properties I picked up last time were from people who had been stupid enough to overgear in this way.

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Guest wrongmove

they started to appear just before the pop in the UK last time (1989 or thereabouts). They were called 'low start' mortgages and interest was rolled up until such time as your rapidly increasing salary could actually cope with the debt you had taken on. Quite a few of the properties I picked up last time were from people who had been stupid enough to overgear in this way.

Ah, yes - I remember low start. I looked for some the other day, but the only ones I found were just IO, followed by delayed repayment, but I'm sure you are right - there were effectively negAmMort in the late 80s.

Anyone seen any this time round yet ?

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I've even heard builders in the US offering cash back mortages. Where you actually borrow 100% to 120% of the house value.

These folk are upside down (us slang for negative equity) on their mortgages before they even get their keys to move in.

The US housing market hasn't really starting tanking yet. It will around xmas, especially the mid-west.

Detroit...4 bed houses with 1/4 an acre and twin garages are already for sale for $70K USD - and going lower....Louisianna with flood damage are changing hands for less than $10K... Buffalo 4 bed houses starting to appear for less than $80K...Repo's in Cleveland Ohio (3Bed, detached, garage) going for $20K.... Hot spots like San Diego, houses are being reduced $100K at a time.... Stay tuned.

No-one is buying. Even if you have the cash you're not buying.

Edited by Pluto

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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