Seattle Bubble Forum Archive

I've got a friend that bought back in 2003 with a piggy-back 80/20 IO-ARM type of loan setup and is looking to refinance into something fixed soon, before values drop and/or rates climb much more. According to the county, their property is worth about 40% more than they paid, so an 80% LTV is in the bag.

He's looking to switch to a fixed-rate loan through a program from WaMu called .

Does anyone know anything about this program? Like if there is anything fishy about it or pitfalls to avoid? From what I can tell it appears to be a payment-option loan. There's also some fine print on there about 5-year IO, which doesn't sound too good. As long as he actually pays the full amount, will that be enough to keep them financially sound?

Thanks for any advise you can give him.

I would advise him that any loan whose fine print reads "Maximum APR is 18%" is unlikely to be in his best interest. Why go for a product that requires a degree in high finance to understand and avoid purposefully-laid traps, when a plain vanilla fixed rate loan is still to be had at a relatively low rate?

It looks like the description on the site deals with fixed or variable loans - can you get the actual loan documents and post them online or e-mail them to me? I'm no expert, but I've done this at least 5 times.

I'm sure this isn't what he wants to hear, but why not sell and rent? If he bought in 2003 he's at least 50% up in equity at this point - I'm sure he could find another GF to sell it to, no?

If it were me, I'd have a RE attorney look over the documents before I sign anything. Two loans I had with Countrywide both had prepayment penalties, even though I confirmed they did not. I was still able to get them to waive the penalties, however I would not trust anyone involved in these transactions.

Realtors, Mortgage brokers, Banks, Appraisers and Title companies. They are all in bed together to take a sizeable chunk of your money.

I understand his logic, however it still doesn't make complete sense to me. If he bought in 2003, he still bought during the "mania" period and it's more than likely his house will be worth much less than he paid for it. I'm thinking 1997-1998 prices, or worse (better).

The point is, he can sell it now, cash out, then find 100 properties just like it or better for MUCH less in a few years. Yes, it's a major pain to move and if money is not an issue - go for it.

I know of people that are renting very large multi-acre lots on waterfront for 1/3rd of what they'd pay to own right now.

If he bought before 2001 and he'd already locked in a low 15 or 30 year <5% rate, I'd probably have a different response.