The Second Wave of Monetary System Failure - Option ARMs and Alt-A loans

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Option ARMs and Alt-A loans this will be worse than the sub prime mortgage crisis. Ordinary ARM loans, which are riskier than fixed-rate loans, apparently arent risky enough for many borrowers. The MBA says that their market share fell from 46% in the second half of 2004 to 36% in the first half of 2005. Why? Partly, it seems, because more people chose option ARMs. Those, of course, are specialty ARMs that give you the option to pay even less than the monthly interest you owe. The unpaid interest gets added onto your principal (negative amortization). Option ARMs climbed from 17% to 23% of first-mortgage originations.

Then there are alt-A loans—the ones you get when you dont submit all the documentation that would be required to qualify for a straight loan. Those are usually chosen by people who have unsteady sources of income—or simply have too little documented income to qualify for a straight loan for the house they want to buy. The MBA says alt-A loans share rose from 8% to 11%.

The average person lives in their home for only 6 years according to the National Association of Realtors. During that time a person only pays less than 8% to the principal and a whopping amount to interest. Of course the Mortgage Bankers Association does like this loan; they want EVERYONE paying the largest amount of compounded interest money to the bank instead of putting it into a personal retirement account earning compounded interest.

When a person applies the monthly savings to a personal retirement account earning compounded interest, over the years, this will yield them hundreds of thousands of dollars when the program is managed by professionals.

A penny doubled every day for 30 days is $1,000,000. We all heard that when we were children. Well banks use that ‘formula’ to get wealthy.

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