Home Sale Relief

Morgan has a fabulous blog that I read and recommend to you, and today he has a post about option ARMs becoming unavailable.

Well, maybe I’m being a bit dramatic, but it seems to me that the Option ARM, if not technically dead, certainly joined the endangered species list today with Countrywide’s sweeping changes to program qualification. Big hat tip to Bill and Paul who alerted me to the changes. The news of the day is Countrywide’s announced changes to loan qualification which include the Option ARM:

Dear Valued Business Partner:

As you may be aware, federal regulatory agencies have issued joint guidance which impacts the qualifying methodology for non-traditional mortgage products. This guidance was designed to better address risks associated with non-traditional mortgage products that offer interest-only and/or negative amortization payment features and to better support the needs of those borrowers who might not understand these types of risks.

In an effort to further align our lending strategy with this guidance, effective Monday, November 19, 2007 Countrywide^®, America’s Wholesale Lender^® began calculating borrower repayment capacity for non-traditional mortgage products using the following three criteria:

• The greater of the Note Rate or the Fully Indexed Rate
• A full amortizing payment
• A loan amount which includes the total potential negative amortization

The resulting qualifying payment amount will be used to calculate both the Housing and the Debt-to-Income (DTI) Ratios for the loan transaction.

The qualifying loan amount including the total potential negative amortization is determined as follows:

• New York - 110% of the original loan amount
• All other states - 115% of the original loan amount

Please note, for ARM loans with MTA or COFI indices, the qualifying interest rate will be calculated using the fully indexed rate (index + margin) plus an “adjuster.” The adjuster is a variable which will be used to annualize the MTA or COFI indices due to the “lagging” nature of these two indices.

Okay, so what does that all mean?

It means, as Morgan points out, that option adjustable rate mortgages aren’t going to be available anymore. The old days are over. Those of us who have been in real estate for awhile knew all along that these loans were going to blow up and now they’ve blown up.

They have blow up so bigtime that it isn’t even funny. The whole financial system is threatened and it is going from $300 billion in doubt to more like $3 trillion in financial losses.

Morgan summarizes this nicely, as usual (this guy is smart and can write):

I mean, this really is the death knell for the Option ARM, is it not? Who is going to qualify at the fully amortized 8.25% payment on this loan fully documented with out some ridiculous stated income and an underwriter asleep at the wheel? Not too many folks, and if they do qualify, they’re probably not choosing the Option ARM. What’s that you say? The 8.25% is only with 3 points on the back? OK, so how many people are going to be selling the Option ARM with out the 3 points? Not too many. So kiss this toxic waste loan good bye (and sorry investors for the inconvenience) as just another poster child of the mortgage miasma that was the early 2000’s.

Well, too bad. I am sorry because I get notes every day from folks who are having trouble with their loan resetting and don’t know what to do.

The FHASecure program recently announced is a possible solution but only for people with good credit, steady employment, ability to make payments regularly, and a good payment record. That doesn’t fit millions of homeowners who are financially strapped, owe too much, can’t make payments regularly and may have one or two 30 day lates on their mortgage already.

I have been saying this for some time. Now is the time to sell your house in nine days using the method I outline in the Mortage Relief Formula. Get out from under now. Reduce your payments. Settle your debts for dimes on the dollar and improve your credit. It is going to get worse and if you take steps now, you’ll feel like a million bucks in a year.

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