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Option ARM Concerns
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   Types of Loan Programs-> Pay Option ARM, Pick-a-Payment, Cash Flow LoanMessage format
Posted 9/13/2006 4:29 PM (#1278)
Subject: Option ARM Concerns
Over the past two weeks, I have gathered a lot of information regarding homeowners that have these Pay Option ARM loan programs (aka Pick-a-Pays, Cashflow ARMs, . . . ). Anyway, I am working in a market in which we are seeing a leveling off or in some cases, a decrease in home values. Many of these homeowners took these type of loans (option ARMs) at the 80% LTV mark and now when we are attempting to place them into a fixed ARM, interest only payment, or the traditional 30/40/50 year fixed mortgages, we are seeing many of them going well above the 80% LTV/CLTV range.

For example, I have a borrower that was referred to me and she took out a $284,000 mortgage last May 2005. Over the last 12 months, she has been making the "Deferred Interest" payment and now her balance is over $290,000. To add to this, she has a prepayment penalty that is approximately $8,600 and her home value has decreased. To sum it all up, she has eaten approximtely $15,000 in equity over the past year. Her LTV that she needs will be 95%. She has good credit, good income, . . . a solid borrower, but it seems that many of the other programs that are out there (due to her higher CLTV) are really sticking it to her in regards to the rate/payment. Yes, I understand that she could have taken other options before she took out the option ARM that she has now, but is there any loan programs that you have heard of that is helping these borrowers transition from their option ARM into another fixed type program.

I am concerned with these increasing loan balances, increasing prepayment penalties, and possible decreasing home values . . . talk about eating your equity from both ends. What will happen in a year or two when many of these loans recast.

Any suggestions would be greatly appreciated. Thanks.
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