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http://www.youtube.com/watch?v=QjY8xVewrPg

I think he blinks in this one.

And a related article

http://mrmortgage.ml-implode.com/2008/07/1...n-arm/#more-190

THE PAY OPTION IMPLOSION

The ‘Pay Option ARM Implosion’ is upon us. These toxic loans have taken down nearly every company who has ever touched them beginning with American Home Loans last year.

Pay Option ARMs are a sub-set of the Alt-A universe, which is about 50% larger in count and dollar amount than the subprime universe. In the past several months we have seen subprime defaults plateau and subsequently decline slightly and Alt-A defaults sharply climb led by Pay Option ARMs. i do expect subprime defaults to pick up down the road, however because a) subprime resets are in a valley right now B) subprime defaults after Hope-Now style modification are surging.

There are about 230k Pay Options in CA and 450k nationally. The loan amounts are much larger than subprime meaning ‘The Pay Option Implosion’ could be a $1.5 trillion problem. 55% of all Pay Option ARMs are in CA. See accelerated reset schedule below.

The largest Pay Option lenders in the nation are a ‘who’s who’ of headline leading troubled lenders such as Wamu, Wachovia, Countrywide, IndyMac, Downey Savings, First Federal, Bank United, American Home Loans and even Bear Stearn, Deutsche and Lehman to some degree. However, the latter three served mostly in the ‘investor’ or ‘conduit capacity during the bubble years and their exposure currently limited to the whole loans and MBS’ they were unable to dump when that market seized in early Q2 2007 for this loan type.

It is very likely, however, that they could still be liable for far greater damages caused to bond holders and mortgage insurers when these loans go really bad in the future. litigation is where many are turning for defaults caused by outright fraud, white-lie fraud and lender negligence.

Many banks made a conscious decision to keep these loans due to their much higher yields for ‘Prime’ borrowers than the typical 30-yr fixed loan or other ARMs. This proved to be a fatal error. A kid in a high-school investment club could have figured this one out last year but the smartest analyst in the room, the banks and the OTS couldn’t.

BANK’S PHANTOM EARNINGS USING PAY OPTION ARMS

All banks holding these should have significant earnings restatements in the future due to an accepted accounting practice allowing Capitalized Interest on Negative Amortization or ‘CINA’. CINA, sometimes referred to as ‘deferred interest income’, is booked as revenue and based upon the highest possible monthly payment possible. This is despite the fact that 80% of borrowers pay the minimum monthly amount allowed on the loan program and the differential (negative amortization) never being actually collected.

The actual revenue will most likely never be realized even in the case of foreclosure because banks are not recovering enough in foreclosure to even cover the first mortgage balance let alone the negative amortization booked as income. It may never be realized regardless due to housing prices crashing 30% on the median in CA in the past 12-months, which was the most popular state for these loans.

This is because most home owners cannot sell or refinance due to being upside down in their homes and homes are not selling in foreclosure other than back to the banks who took back 96.8% of all homes that went to auction last month in CA. Please see my June Foreclosure Report for more detail.

One thing is for sure, Pay Option ARMs were the absolute most toxic loan program ever created. Even worse than subprime 2/28’s and 3/27’s. -Best Mr Mortgage.

If there is any doubt whatsoever thgat the banks are insolvent (even based on the lunatic rules the banks themselves made up) this should dispel it completely.

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interest only would be similar but I think they work differently.

Yeah, they are like the stage beyond interest only from what MrM is saying. You pay less than the cost of the interest, so your loan balance is actually getting bigger as you pay for it. IO is pretty dumb as loan repayment methods go, but at least you didn't end up owing even more at the end of it. Was just wondering if we had anything like that, i've never heard of it before so i'm guessing we don't.

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Yeah, they are like the stage beyond interest only from what MrM is saying. You pay less than the cost of the interest, so your loan balance is actually getting bigger as you pay for it. IO is pretty dumb as loan repayment methods go, but at least you didn't end up owing even more at the end of it. Was just wondering if we had anything like that, i've never heard of it before so i'm guessing we don't.

We might not but our banks definitely do.

International finance eh?

Don'tchajustloveit.

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We might not but our banks definitely do.

International finance eh?

Don'tchajustloveit.

Good point, but he's suggesting the large numbers that will need to repay the balance after it hits a certain amount will all of a sudden start selling, causing another huge glut of houses to come onto the market, making prices fall even further. I'd just like to see that happen here.

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Good point, but he's suggesting the large numbers that will need to repay the balance after it hits a certain amount will all of a sudden start selling, causing another huge glut of houses to come onto the market, making prices fall even further. I'd just like to see that happen here.

The yanks don't sell, they just hand the keys back.

Over here the debt follows you around like the ancient mariner unless you go bankrupt.

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I really don't think you could make of of this up if you tried.

What idiot would possible think not even covering the interest accrued on a loan would be a good idea!!!! Especially in a system where you can just pass the keys back and suddenly it's not your problem.

I assume the idea was house prices can only go up so pay a little as possible stay in the house a number of years, sell it and then buy something else?

God these bankers want shooting.

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Yeah, they are like the stage beyond interest only from what MrM is saying. You pay less than the cost of the interest, so your loan balance is actually getting bigger as you pay for it. IO is pretty dumb as loan repayment methods go, but at least you didn't end up owing even more at the end of it. Was just wondering if we had anything like that, i've never heard of it before so i'm guessing we don't.

Northern Rock's 125% (IO?) is as close as we get - if the 30% unsecured loan was used to help with the repayments, you'd be in a similar situation.

Like IO mortgages, option-ARM is perfectly good IF AND ONLY IF you are financially savvy (variable income, for example). If you just use it as a way of afforing a $500k mortgage on a $30k income.. like a neutron bomb, the people are gone but the buildings remain..

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mr mortgage is the business.whats happenign there is gonna happen here.

No it won't, unfortunately our bankers aren't clever enough to design products that bring the financial system to its knees so they can get a government bailout but still pocket the fees.

Our banks just bought most of the bonds backed by these mortgages from the clever American bankers who told them they were great. Those bonds are going bye bye.

You've got to love those yanks, the greatest salesmen have the least morals and they are the greatest salesmen ever.

Edited by bobby9983

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Northern Rock's 125% (IO?) is as close as we get - if the 30% unsecured loan was used to help with the repayments, you'd be in a similar situation.

Like IO mortgages, option-ARM is perfectly good IF AND ONLY IF you are financially savvy (variable income, for example). If you just use it as a way of afforing a $500k mortgage on a $30k income.. like a neutron bomb, the people are gone but the buildings remain..

there is nothing savvy about buying a house using a loan which increases it's balance each month.

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I like Mr Mortgage, he has a kind of Ray Liotta look about him, to the point that I expect him to slam his fist down and scream "SO YOU FINALLY MADE IT TO THE SUBURBS - BITCH" (Something Wild - 1986)

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  • 395 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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