Just heard from a friend of mine, she was watching a documentary either in the States or in Canada about some new crisis to hit all to do with loan products called lever arm. And supposed to peak in 2011, has anyone here heard of that? Apparently totally different from the sub prime products. I haven't heard anything about that yet.
Anyone heard of lever arm loans?
- Thread starter eastside
- Start date
Well thank you, it's always nice people can be polite on this site.
My friend is an airline pilot, it's some new thing she said that back here hasn't been in the news yet, and all the pilots were discussing it in Anchorage last night. She probably hasn't got the name of it right, she just said I should look into it as the Aussie Captain was wound up about it, and she knows I have property. I will get her to give me the details from someone who was there.
My friend is an airline pilot, it's some new thing she said that back here hasn't been in the news yet, and all the pilots were discussing it in Anchorage last night. She probably hasn't got the name of it right, she just said I should look into it as the Aussie Captain was wound up about it, and she knows I have property. I will get her to give me the details from someone who was there.
I suspect what she heard was LIBOR (London InterBank Offered Rate) pronounced "leeber") ARMs (Adjustable Rate Mortgages). They're variable rate mortgages, which used to be the exception rather than the norm in the USA. Many people took them during the heights of the property boom on a very low 5-year honeymoon rate, which will revert to "cost-of-funding" rates upon expiry of the honeymoon period. LIBOR is simply one of a number of reference rates that can be used to set mortgage interest rates.
I've heard the peak of these coming off is April 2009, July 2010 etc - ie it depends exactly which mortgages you include as to when this peak is.
The person claiming that 2011 is the peak must relate to 5 years from some supposed peak in 2006... at which time a large number of mortgages will go from, say, 3% (intro rate) to a market rate of perhaps 6%, doubling repayments.
Many people borrowed the maximum they could under a servicing model at 3% - don't ask me how the lenders let people do this, I guess that's why so many people are furious with the banks
- and won't be able to afford 6% repayments.
What they assumed, at that time, when the property market looked so wonderful, is that even though they knew they couldn't afford repayments at 6%, their property would have doubled in value in 5 years, so they could simply refinance and release enough to make mortgage payments for a few more years.
Of course this was all fine and dandy until it became apparent that the property not only wouldn't have doubled, but would possibly be worth less than purchase price.
I've heard the peak of these coming off is April 2009, July 2010 etc - ie it depends exactly which mortgages you include as to when this peak is.
The person claiming that 2011 is the peak must relate to 5 years from some supposed peak in 2006... at which time a large number of mortgages will go from, say, 3% (intro rate) to a market rate of perhaps 6%, doubling repayments.
Many people borrowed the maximum they could under a servicing model at 3% - don't ask me how the lenders let people do this, I guess that's why so many people are furious with the banks
- and won't be able to afford 6% repayments.What they assumed, at that time, when the property market looked so wonderful, is that even though they knew they couldn't afford repayments at 6%, their property would have doubled in value in 5 years, so they could simply refinance and release enough to make mortgage payments for a few more years.
Of course this was all fine and dandy until it became apparent that the property not only wouldn't have doubled, but would possibly be worth less than purchase price.
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