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Seattle Bubble Forum Archive • View topic - scariest data ever: 33% of Seattle mortgages are IO/neg-am

scariest data ever: 33% of Seattle mortgages are IO/neg-am

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scariest data ever: 33% of Seattle mortgages are IO/neg-am

Postby sniglet » Thu Jul 12, 2007 9:58 am

I find the data showing that interest only and negative amortization loans were 33% of ALL mortgages in the Seattle area for 2006 the scariest piece of real-estate data out there.

Sure, afordability, sub-prime, inventory, and appreciation data are interesting, but the over-all prevalence of dodgy financing is the biggest indicator of market health, in my view.



Nationally, we can see that IO and neg-am loans are prevalent even in prime mortgages.



It is MOST interesting to see that the deterioration of mortgage quality goes far beyond sub-prime. 36% of 2006 US prime mortgages were with no documentation. With so little scrutiny of borrowers how do we know these are truly "prime"?

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Postby deejayoh » Thu Jul 12, 2007 10:43 am

Last edited by deejayoh on Thu Jul 12, 2007 1:52 pm, edited 1 time in total.
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Postby sniglet » Thu Jul 12, 2007 10:58 am

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Voodoo Loans

Postby SeattleMoose » Thu Jul 12, 2007 11:00 am

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Postby sniglet » Thu Jul 12, 2007 11:10 am

Notice how interest only and negative amortization loans were over 50% of all jumbo prime loans in 2004 and 2005 (they were 38% of all jumbos in 2006). If that doesn't send shivers down your spine I don't know what will.

The way I see it, the primary reason anyone gets an IO or neg-am loan is because they can't really afford the home they are buying. With such large percentages of prime borrowers stretching themselves beyond any rational limit it would seem there is virtually no cushion in the system to weather a market downturn. This is yet another reason I stand with Eleua in believing there is going to be a DEEP retrenchment before all is said and done.

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Postby Matthew » Thu Jul 12, 2007 11:41 am

I just found out that my brother in law has an interest only loan on his house. Here is a guy that makes good money (approx 175k - 200k) a year + options, but yet decided to get with an interest only loan on the advice from my other brother in law (works for Country Wide financial) and his mortgage broker.

He said he is just paying off the interest, nothing more. I know that he put at least 20 percent down on his house, his reasoning for going IO was that he didn't expect to be in the house long. Well it's been about 4-5 years now and they are going to be in the house for a while longer....
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Postby Matthew » Thu Jul 12, 2007 11:43 am

Also from talking to a few people I work with that have bought houses recently it would seem that even when they go into a mortgage broker's office requesting a fixed loan, that the mortgage brokers are really pimping out their IO and ARM loans and going with the hard sell.
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Postby carlislematthew » Thu Jul 12, 2007 12:02 pm

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Postby Eleua » Thu Jul 12, 2007 12:07 pm

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Postby TJ_98370 » Thu Jul 12, 2007 1:05 pm

Last edited by TJ_98370 on Thu Jul 12, 2007 4:19 pm, edited 2 times in total.
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Postby prusakolep » Thu Jul 12, 2007 1:26 pm

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Postby deejayoh » Thu Jul 12, 2007 1:55 pm

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Postby sniglet » Thu Jul 12, 2007 2:05 pm

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Postby finance » Thu Jul 12, 2007 3:18 pm

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Postby S-Crow » Thu Jul 12, 2007 4:03 pm

finance-

re: I/O study.

The leverage a large number of people are utilizing their homes for really does concern me. It's remarkable. The use of I/O loans where people have to use this financing or choose to is rampant. Reminds me of the auto business. No longer is it on the minds of people what the the total cost of a vehicle is, but just the monthly "rental" fee. It is more often than not that people only allocate a certain amount of the budget to the monthly payment ($500-600-700 not including operating, insurance and maintenance costs). They don't pay for the $40,000 F-250 truck outright. Can't.

Being in the escrow business is like always getting backstage passes to see every major concert coming to town. In other words, you can't get any closer to the action of the market and what people are doing. It is an amazing position to be in during these times in the market.

Numerous refinance and purchase borrowers cannot afford a 30 yr fixed rate with PITI. In 2006 it was a stunningly profitable endeavor for those in the loan business placing people into 80/20 I/O deals. If you could earn the rebates on upselling pre-payment penalties, the money flowed like water over Niagara Falls. Utterly amazing checks we were cutting out of escrow.

Sample: an acquaintance of my wife purchased in late 2005. Around $550K with 1st/2nd ARM financing. Refinanced since ownership. Outstanding loans are $750K. Is the house worth that? The latest financing is a 1 yr ARM on the 1st; the 2nd mtg. is probably around 9-10% and there is a 2 yr prepayment penalty that we calculated at $18,000. Where has the money gone? You name it. Their lender is heavy sub-prime.

Granted I'm cheap, but I don't know how in the heck people think it is normal to spend darn near $70000 to live in a place that would rent for probably under $2000/mo. These folks are a classic example of "have to" obtain I/O financing. Unfortunately, they may be in a situation where they cannot refi again and turn into a "have to sell" seller. But, what can you do?

The sad thing is we are watching a few existing clients dip into the housing ATM and leverage the living hell out of their home to buy another "investment" to flip. Came way too late to the party.
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