Incidentally, Tim — URL validation seems to be broken. When you type a proper anchor, quotes around the URL, TypePad seems to want to include the trailing quote in the URL, leading to a broken link.

At least, it does it in the preview pane. Who knows what will happen once I post….

(Incidentally? I have avoided rendering an opinion, but so far, I think that typepad sucks)

Wait….what, now?

First you write that ARMs will be qualified on the “fully indexed rate (margin + index)”, then you write that those are two different quantities. Which is it?

Perhaps you should just avoid the financial jargon altogether, Rhonda. When you refer to a quantity being “amortized for the life of the loan”, what I think you’re trying to say, is that buyers will be qualified on their maximum monthly payment (incl. PITI)…but it isn’t clear from the (obtuse) way that you’ve phrased things.

In any case…I’m not really sure what your point is, other than splitting some very fine hairs. Care to use english?

To put that into perspective, qualifying based on a $1400 payment means you can borrow arounf $270k on a 30 year fixed at 6.375% or around $227k for the 5/1 ARM 10 Year I/O at 6.125%.

While the ARM borrow would have to qualify for the $1400 payment, the payment would actually only be $1160.

I/O ARM borrows are going to be able to puchase much less than similarly qualified standard borrowers.

(Assuming I calculated that correctly — Borrow = (Payment / (Interest/12)) / 0.95)

She may not realize that WA earthquakes make CA earthquakes seem like an amusement park ride. CA has never had an earthquake as large as WA has. Think about magnitude 9 sustained for 3 minutes and you can imagine the urban renewal.

So how many people are the new standards likely to affect? 10% of potential homebuyers? 50%? 90%?

In the example, the potential buyer’s purchasing power was shaved by 16%. If that kind of scenario plays out across even a significant minority of the potential homebuying market, I don’t see how the result can be anything other than a serious downward pressure on prices…

Check out some of the replies…

Seems like they are taking one for the team. Putting their finger in the dike, more likely.

…Californians come from a very different weather.

Preaching to the choir here. I was born in raised in the South Bay.

Now if only I could get a pink pony every time I post a comment…

Re: Californians coming to save us – Don’t forget about who’s losing their assets with their own plummeting housing market. These poor buggers are taking 100k haircuts on a regular basis.

If only there were a preview feature.

I have activated a live comment preview feature. Let me know how it works for you.

http://calculatedrisk.blogspot.com/2007/07/wamu-staying-committed-to-subprime.html

I really wish we could edit after posting as I pretty much fat-finger everything I type!

http://market-ticker.denninger.net/

I cannot spek for others, but when you communicate using all caps it makes me feel like you’re yelling at me. I don’t like being yelled at :-)

Meanwhile new construction and conversions keep on going like if it were the summer 2005.

As if that’s a bad thing. The more they build the cheaper it will be for me to buy a house when this cycle hits bottom.

I seem to have trouble controlling THE VOLUME OF MY VOICE.

Personally, I kinda like that softwareengineer uses all caps. I can look at it and nearly instantly know who is speaking (like talking to someone with a strong accent).

I suppose you could use the B tag to emphasize something, but I usually forget and end up bolding everything. If only there were a preview feature.

But back to the criticism of softwareengineer’s content:

I don’t think enough is made of reverse mortgages. This is just another way to steal from old people. Why don’t lenders just wait out in front of the Social Security office and mug people like the rest of us? It won’t be long before enough people get bloodied with this scam that the AARP will end up bringing action against the financial community.

A few weeks ago I drove by a $700K-$800K development out in Bothell (Belmont Crossing I think) and all of the remaining homes had signs out front stating “4.85% financing” – which as far as I can tell has to be an option ARM.

Online TYPING IN ALL CAPS is considered shouting and is frowned on in most cases. In print, shouting is never worse than when it is done with decorative or script typefaces. It’s ugly. It’s hard to read. Just don’t do it, PLEASE!

When I see all caps, I just stop reading.

All this points out is that banks issuing these loans weren’t planning on having borrowers make payments on them. The expectation was that borrowers would re-fi frequently generating new fees, in effect turning their equity over to the bank.

Great little system we had going there. Glad to see some signs that it is ending.

I use capital letters the same way Stephen King and many professional writers use them, for emphasis.

Did my blog bother you at all for other reasons?

I’m open minded and believe in exchange, any comments or criticisms to the content, rather than just the form?

ARM’s will also get hit if they were banking on appreciation to stay afloat…

This will be interesting… prices resist downward pressure to a certain point… you can always live in it even when you’re underwater so long as you can make your PITI…

July 22 will go down in history as the day the prices hit a brick wall and woke up with a bad headache…

That’s the first time I’ve smile all week.

Restricting credit though will directly reduce demand, which should fairly quickly increase inventory and eat away at prices.

The perfect storm though is if we enter a recession. Then supply will substantially increase due to defaults.

Hmmm …I am thinking to buy a vacation home in San Diego …in a year or two.

I THINK YOU NEED TO GET YOUR CAPS LOCK KEY LOOKED AT; IT SEEMS TO BE BROKEN. PERHAPS YOU HAVE A CAT SLEEPING ON YOUR KEYBOARD?

And I absolutely agree…qualifying buyers on a teaser rate, but not at the full re-set rate, is setting everyone up for disaster. Prices will have to fall in line with income, once the ARM IO/Neg Am/Pick isn’t available to all who can fog a mirror.

Folks that take out ARMS STILL OWE MORE THAN TODAY’S FIXED RATE at the time of sale, as that means they can’t sell or refinance without the cash [or EQUITY....LOL] to settle at FIXED RATE they OWE. Sounds like another foreclosure on the market….

Reverse mortgage is EQUITY or wealth used for retirement from the home. I’d hold a CRUCIFIX up to this option for a plethora of reasons. You have no idea HOW LONG YOU’LL LIVE, hence how long you’ll need your home. You leave severely reduced or no inheretance to your spouse and/or kids. This is the main reason I’d never do it: YOU NEED YOUR HOME’S EQUITY FOR POTENTIAL NURSING CARE EXPENSES [good nursing care costs $75-100K a year]. Potential nursing care in a Social Security Hades Hole because you have no wealth….let’s not go there.

Its fresh from Dr. Roubini’s desk today:

http://www.rgemonitor.com/blog/roubini/206207/

Actually, it sounds like it turns ARMs into what they should be. A way for someone who can already afford the house to use less income in the transaction, thus allowing them to allocate the difference to other investiments.

A $70K income would be paying approximately 50% of its approximate $4K net for a $200K loan with property tax, home owner fees (i.e., water) and insurance. I’ll subtract income tax advantages past the standard deduction, if you subtract HOUSE MAINTENANCE COSTS.

It was very simple, around the late 80s, the Seattle Bubble popped and the Savings and Loan fiasco occured. The lenders were HORRIFIED, so instituted more conservative lending requirements. You could borrow NO MORE THAN 30% OF YOUR NET HOUSEHOLD PAY, after car payments, student loans, etc were also removed from your household net.

This means it would take about $70K/yr [with no other debts] to borrow $200K.

But even this amount can be extremely excessive, i.e., a $200K loan would eat up about half the approx $4K/mo net on a $70K household income. That might be OK, if you knew your income was going up for sure and you were in your 30s.

If you’re in your 40s, I would borrow FAR less, like around $100-150K, you’re closer to retirement and need to start saving MASSIVE SAVINGS for it. YOU can’t do that and pay HUGE HOUSE PAYMENTS TOO.

If you’re in your 50s, you better have the CLEAR Title or equivalent cash to in the bank to hypothetically pay off the loan principle. I wouldn’t count your IRAs or 401Ks either, you need those for retirement too and there’s heavy penalties cashing those in anyway.

The realitors know I’m right and a lot of today’s investors in high priced real estate in Seattle wish their debts weren’t so darn high today….right now is a good time to sell and get yourself cash ready again.