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SF Bay Area $30B ARMs resetting


$30 billion home loan time bomb set for 2010
Carolyn Said, Chronicle Staff Writer
Sunday, September 20, 2009

   http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/20/MNOR19N2B1.DTL&type=business&tsp=1

Thousands of Bay Area homes have a ticking time bomb embedded in their mortgage. The homes were purchased with loans known as option ARMs, short for adjustable rate mortgages.

Next year, many option ARM payments will begin to readjust, slamming borrowers with dramatically higher monthly mortgage bills. Analysts say that could unleash the next big wave of foreclosures - and home-loan data show that the risky loans were heavily used in the Bay Area.

From 2004 to 2008, "one in five people who took out a mortgage loan (for both purchases and refinancing) in the San Francisco metropolitan region (San Francisco, Alameda, Contra Costa, Marin and San Mateo counties) got an option ARM," said Bob Visini, senior director of marketing in San Francisco at First American CoreLogic, a mortgage research firm. "That's more than twice the national average.

"People think option ARMs (will be) a national crisis," he said. "That's not really true. It's just in higher-cost areas like California where you see their prevalence."
Of the 10 metro areas nationwide with the most option ARMs, three are in the Bay Area, according to Fitch Ratings, a New York research firm. They are the East Bay counties of Alameda and Contra Costa, the South Bay area of Santa Clara and San Benito counties, and the counties of San Francisco, Marin and San Mateo.

Together, these areas account for the second-most option ARMs in the country, although they are still far behind the greater Los Angeles area (including Los Angeles, Riverside, San Bernardino and Orange counties), according to Fitch data.


 
  • September 24 2009 - US
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Answers (28)

Profile picture for DYeh
  • DYeh
  • 218 contributions
Space-acer,
That is so true.  I always have competitor(s) when I submit an offer.
  • October 01 2009
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Profile picture for space_acer
 "I only knew I couldn't afford the kind of house back in 2004~2008 becuase the prices were rising and bidding up"

Did you verify it was bid up? or did you take the realtor's word at it?  


http://mamalizaor.com/post/958823/my-plan-to-change-the-real-estate-industry-forever-sounds-humble-right-

How many times have you heard one of these phrases from a listing agent at that point:
"We have another offer coming."
OR
"I am expecting at least one other offer."
OR
"I just got another offer.  I will present yours and theirs at the same time."
At this point, you have no proof that any other offers exist, correct?  You must depend on the ethics and honesty of the other agent.  Let's face it - this is awkward sometimes.  I can't even count the number of times that I later figured out that the listing agent was CLEARLY lying about other offers.  In fact, there is one guy here in Austin who is notorious for saying one of the above phrases EVERY time that he gets an offer in hand, so much so that I was able to tell my clients not to even give it a second thought.  Sad commentary, huh?
 
 

 
 

 
  • October 01 2009
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Profile picture for blue screen exile
The majority of them will not refinance in time.  Their present rates are better than what is offered, most are not underwater yet, most are not scrambling to make their payments yet.

They will be "blindsided" just like the rest of the nation.  As the resets approach, their values will be dropping, and they will be underwater unable to refinance, and the mortgage modification people will either say they don't qualify, or will say they don't need it as their loans are current.  And when they start defaulting, it will be too late.  They will be far enough underwater that the mortgage institutions will refuse to do a modification and will refuse to do a refinance.

And you really think there will remain sufficient job opportunities to keep all those people employed?  Other than healthcare and "loan modifications", what industry is not affected by the global recession?
  • September 30 2009
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Profile picture for DYeh
  • DYeh
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It's always interesting to see data provided by people on the Zillow vs. the data I get from the Austin realtor Board.
I finaly figured out the differences between subprime ARM Loan, Option ARM loan, prime ARM loan,,etc.  In the state of TEXAS, Subprime ARM loans were not allowed. That is why a lot of local realtors saying Austin is not impacted by Subprime ARM.  For the people with prime ARMs, and option ARMs, Majority of the home owners are able to refinance before the rate change as Austin's market is lagged behind national market. The Austin unemployment rate is 7.3%. That is below national rate of 9.4%.  I really don't know how the ARM wave will impact Texas market.  After all, the Board of Austin Realtor had pointed out the Austin market is different, and did no see the bubble back in 2006~2008.
  • September 30 2009
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Profile picture for blue screen exile
Like Pflugerville better?

Pflugerville chart

Good luck!
  • September 30 2009
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Profile picture for blue screen exile
Austin different?

Austin Chart

Yes, it bubbled later, thus will trail behind the fall of others, and the public records data wasn't processed for the first part of the decade.

Of course the sales people are going to say their area is different; that is what we are hearing across the nation!  If they have a vested interest, their statements are propaganda.
  • September 30 2009
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Profile picture for DYeh
  • DYeh
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Interesting information about the ARMs and option Loan. I really thought the ARMs crisis can be reduced by refinancing a 4.5~5% fixed rate with the banks (at least I was told).  I thought there would be people able to afford 4.5~5% rate payments, but not ~8%. And I thought with the current avaliable ~5%, people with jobs can easily refinance (Austin market had not dropped much).  I guess... if people can only afford 2~1% rate loan at the time, it would be hard to afford the current ~5% rate at/after refinance.  I did not know the ARMs rates were so low, and the option was out there.  It looks like even ~5% current rate is too high of a payment for some people who bought into too much.  I only knew I couldn't afford the kind of house back in 2004~2008 becuase the prices were rising and bidding up. I didn't know the rate was 2~0% ARMs.  If this partice was also in Austin.  This ARMs trouble wave could be interesting.  Whoever said "the Austin Market is Different" on Radio Ads should be laughed at!
  • September 29 2009
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Profile picture for blue screen exile
Dyeh is inteligent.  She is not "dumb".  She just has not been following the loan industry.  A little over a year ago, I didn't know what an "option loan" was either.  It is not something that most of us should have any need to know about, but it certainly will be big news that most of the nation will know about as the foreclosure rates for these loans start to increase.

  • September 29 2009
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Profile picture for HousePoorAmerica
You guys have to know Dyeh is messing with you. No one can be this dumb.
  • September 29 2009
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Profile picture for blue screen exile
It is so hard to log off when there are such good interesting posts!  But really, I do need to get some work done.  At least I don't have to worry about them resetting my loan.
  • September 29 2009
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Profile picture for Mr Caveat
no ARM can be reset to another ARM without positive equity. the financing is not available. (possible exclusion of wells fargo bank customers)

and even for them, nothing nearly as enticing as a pick-a-payment, no-income-no-job-no-assets(NINJA), 0-2% teaser rate ARMs. these are ALL gone.
  • September 29 2009
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Profile picture for Mr Caveat
here is the problem i see with continuing incentives...

they are continuing incentives...

what?

why would i buy a home now, today if i could use the credit tomorrow and pay the lower price? why would i buy now if i could wait for next year when the incentive gets bigger?

also, i fail to see how the government giving people 10,000 or 50,000 helps anyone when the buyer of the home could otherwise get it for 10,000 less. in the case of the credit, people who buy now will see a fall in property values immediately after the credit expires. in many cases the fall in demand will probably be akin to last january, febuary, march
  • September 29 2009
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Profile picture for blue screen exile
The "option" in "option ARM" meant they didn't have to pay the full payment, they had the "option" to pay what they felt like, up to the point of becoming underwater, or a given number of years.  Yes, they were issued in Austin too.

The "option ARMs" were intended for self employed businesses or people on commissions that had widely varying income between different years, to ballance out their payments to their income schedule.  They were never intended for ordinary people with fixed income jobs.  But the lending industry handed them out like candy to anyone that asked.  And even those for whom they were intended didn't anticipate a several year down-cycle in their business.  They can't afford to keep going the way they are, and their business are still not anticipated to turn around overnight.

And even if the were not "option" ARMs, most ARMs offered in 2002 through 2007 were offering "discount rates" for the first year, or two or three.  Yes, many of them had written into the loan agreement 2% for the first 2 years, and then to be reset to whatever the index rate was plus the margin.  If they had the rate based on the index and the margin to begin with, they would have been about 4.5%.  ARM's still have lower interest rates than fixed rates, but it was the enticement "discount" rate for the first few years that creates that created numerous loans that people really could not afford.  Of course the realtor would just say of course your income will increase by then, and if not, since property values go up, you can dump the property at that time for a profit and get something else.

Austin is presently being held up by the government first-time buyer giveaway.  When the crutch is removed, it will fall like the rest.
  • September 29 2009
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Profile picture for Mr Caveat
well yes they were, its called a teaser rate, but that is not the point.

ITS NOT THE RATE!

look arms were set at 6% a year. in their infinate wisdom banks said "if you cant pay the whole thing don't and we will add interest to the principal"

you have homes where the mortgage is valued 25% above the peak bubble price which has fallen 30-50%. 500k loan owe 650k, that's bad enough. turns out the home cant be sold for 300k now. a 0% amortized loan is 2k whereas they were probably paying 1,000-1500(of a 3500 payment) before and the rest was just added to principal.

thats one kind of product.

the more common one is the interest only, which resets from 6% maybe to 5% but your payment still jumps from 2500 to 3500.

no ARM can be reset to another ARM without positive equity. the financing is not available. (possible exclusion of wells fargo bank customers)
  • September 29 2009
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Profile picture for DYeh
  • DYeh
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After the home sales taxes credit 2009 ends.  There will be a 2010 home buying incentive program, right ? I heard the idea is under discussions.  I think the home buying trend will keep going steady as long as the tax payers will continue with the incentives.
  • September 29 2009
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Profile picture for blue screen exile
Remember Texas is one of the "subsidized" states, not one of the "subsidizing" states, and California contributes more in total subsidies to the other states than any of the other states.

And yes, Austin and Huston will both be affected by the wave of Option ARM resets.  Even Pasadena Texas will be affected.  Even Lake Conroe will be affected.
  • September 29 2009
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Profile picture for DYeh
  • DYeh
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2%? 1%? 0%? rates.  Were the ARMs really that low several years back ??  That was unbelievable.  I guess that kind of ARMs never happened in Austin, TX. The Austin high end market are still holding up with 300% higher prices than the 1999~2003 prices.  Most of those houses have been sitting on the MLS for 8~24 months not dropping a penny.  I am wondering if they really need to put their homes for sales or not. Even a couple foreclosed properties are holding their prices firm.
  • September 29 2009
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Profile picture for Mr Caveat
i agree the news has been less pessimistic for the last few months, but data is data is data.

we are losing jobs at a slower pace than we were. we are still losing jobs(200,000 per month)
home SALES have risen for 2 of the last 3 months and it is important to note that 47% of sales are related to the home buyer tax credit, thus the core demand for the asset is still very weak.

also the new standards of lending are here to stay. people who cant afford their homes will not be able to refi. banks will not do 120% LTV loans (they will balk at 95% LTV)

you dont understand that the rate isnt the issue on a lot of these loans. its balloon payments, its the principal payment. you could refinance these people to a 0% 30 year fixed and still see a huge difference between that number ant the one they were paying on. nobody wants to pay that much for a house. if they did, the first 30% decline never would have happened.
  • September 29 2009
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Profile picture for blue screen exile
$30 Billon option arm resets ---

What was implied is that other parts of the country aren't as affected since they don't have the same absolute magnitude...

But really, the concern is not the total dollar value of such loans in a given area, but the NUMBER of loans as a RATIO to all the loans in a given area.

Sure, California may be someone unique in a 1:5 ratio for recent loans, but there are certainly other parts of the country that are not much better off.

And regardless, California predicts the Economy of the nation.  If California doesn't survive, none of the other states can either.  The economies are not isolated.  There will be a snowball effect.

The best thing that could happen would be for California to Succeed from the Union and stop subsidizing the other states.

  • September 29 2009
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Profile picture for blue screen exile
The media makes up news to manipulate markets.  They really don't care about the pending impacts until after they happen.

Those that are more proactive look at the data ahead and forecast.  The govenment will continue to interviene to try to minimise the impact, but most of these loans are already underwater, and no one is modifying loans for more than 110% of value, and no one is issuing new loans for more than 97% of value, and the better loans are only 80% of value or less.

As NTETS said, if they are paying 2% now, or less than 1% now, or even less than 0% now, they will not be able to afford the 5% present fixed interest rates, even if they still had employment in an area where the unemployment rate keeps rising and many of the unemployed and under-employed have already dropped off the government benifits and reporting.


Remember, almost all media sources are funded by advertisement revenue from those that have products to sell.  They will spin their reporting to benifit their advertisement customers regardless.
  • September 29 2009
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  • DYeh
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The recent news had shown our economy is turning around, and the housing prices had rised for the past 3 months.  These indications are showing we had past the worsest nightmares. As long as the rate are staying low. I am sure a lot of trouble ARM owners can refinance with better rates than the reset rates to keep their home  The predicted trouble ARMs problem twill probably not as bad as it had expected.
  • September 29 2009
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Profile picture for jdsdaddy
Thus, all this hyp about the new ARM wave is not real.

These ARM resets are real, and they are going to be spectacular!
  • September 29 2009
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Profile picture for Mr Caveat
not every loan can be refinanced, and rates may not stay where they are. treasuries have risen and the Dollar is off 30% vs the Euro this year.

also why?

25% of foreclosures dont even come from rates resetting higher, its from people calculating the cost of owning a home that is worth half of what its worth.

a good portion of those loans, they arent just ARMs they are option arms where the minimum payment is BELOW the cost of a ZERO PERCENT loan. these owners cant even pay just the principal.

1 in 8 americans is expected to be out of work by march. who will refinance those loans?
  • September 29 2009
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  • DYeh
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Can't the ARM owners refinance with any of the bank sfor a fixed rate or another ARM before the rate change ?  The current mortgage rate is very attractive.  I was told the trouble ARM owners can refinance. Thus, all this hyp about the new ARM wave is not real.
  • September 29 2009
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Refinance from who ?  
  • September 27 2009
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  • DYeh
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The Austin area has the similar foreseeing ARMs crisis coming.  Most of this ARMs problem can be resolved by refinancing before the adjusted rates hit. With the current low lending rate, I don't see the 2004~2007 ARM loan would be a problem.
  • September 27 2009
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Bumb



"People think option ARMs (will be) a national crisis," he said. "That's not really true. It's just in higher-cost areas like California where you see their prevalence."


 
Of the 10 metro areas nationwide with the most option ARMs, three are in the Bay Area, according to Fitch Ratings, a New York research firm. They are the East Bay counties of Alameda and Contra Costa, the South Bay area of Santa Clara and San Benito counties, and the counties of San Francisco, Marin and San Mateo.

 
  • September 27 2009
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  • September 27 2009
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