Lammie":3o0w7m45 said:
I think that ARMS should be illegal.
Most commercial banks that do not run a secondary market mortgage operation MUST use adjustable rate mortgages. Commercial bank lending and mortgage companies are two totally different animals. Banks must use their money on deposit to loan and make money on. Mortgage companies use the bond market to create a margin on their loans to make money, not to mention their fees.
It is not good business for a commercial bank to make a 30 year fixed rate mortgage at say 6%. If a bank's cost of funds, (the rate paid on deposits) jumps to 3.5%, there is very little margin. Rrates seem to change very fast, at least recently, and a bank must manage the margin to maintain a steady income.
It is how the ARM is structured as to wether or not is should be used. Alot of the borrowers whose ARM adjusted up didn't read the paperwork thoroughly, and the mortgage companies sure didn't tell them about it. They base the rate off of an index, and then increase the margin ABOVE that index after a period of 1-3 years. This is where people's interest rate and payments went through the roof. Instead of paying 7.5% and $900/month, all of a sudden they were paying 11.5% and $1287/month. (That is based on a $130,000 loan, 30 year amo.) That is where a lot of people got hurt, trying to shell out an extra 350-400 a month for their mortgage payment.
Alot of commercial banks, at least in my experience, do not use this method on their ARMs. More so, if the index is 6%, and the bank places a 1% margin on top of that, that is what it is for the life of the loan. For instance, the initial rate will be 7%, and may vary from year to year, but the MARGIN will never be more than 1%. So only the index can change the rate, not the margin above the index.
I agree, some ARMs should be illegal the way they are structured, but they are also not avoidable by everyone. Hope that is all clear.
Just a little info from the "inside".