There have been mixed reviews about Adjustable Rate Mortgages throughout the Real Estate Industry, our beloved Media, & the General Public as a whole. Personally, I stand by the credence that they are a very good product & tool for some people. Just because Neighbor Bob, who is being transferred to Western Pennsylvania to head up the Academic Advisory Role at Penn State has an adjustable rate, doesn't mean that it's right for you and your particular financial situation. In celebration of keeping it simple, I won't go into a breakdown in which cases that an Adjustable Rate may make more sense than a Fixed Rate, or vice-versa. That's a unique & individualized case by case call, dependent upon a variety of factors including your goals, current financial make-up, possible future financial make-up, etc, etc. I'd advise you consult a Mortgage Professional to analyze your situation to help make the best decision for you. I'd also highly recommend you don't let Neighbor Bob advise you on your Mortgage Needs, he's probably better suited to help your children in the pursuit of a higher education at a College Institution.
What I really want to concentrate on is 2/28 ARM's that were entered into by a lot of individuals with less than stellar credit and highlight one particular case study whose loan closed earlier today. These adjustable rate loans were typically fixed for two years, at a lower rate than one may qualify for otherwise, and then became adjustable after the two year time frame was up. The philosophy, if used and recommended correctly, would give you a lower payment and allow you to clean up your credit to 'White House Dining Stature'.....all along making sure all your mortgages payments were being made on time. Some followed the plan, some didn't. Some were advised well, some not so much. The important thing to me was that when you entered into that loan, you did so in a good equity position. After-all, if you owe a high percentage or more than your home is worth after your rate adjusts, I don't care how good your credit is....you are going to be in a proverbial pickle.
Earlier this morning, a former client of First Choice Equity Group Inc.,refinanced into a conforming interest rate that is in tune with the best rates the market has to offer. Just two short years back, his financial life was a tad off track and he needed to refinance to consolidate debt and get back on track. To try to lessen the impact of the risk factors he fit under at the time by putting him in a relatively high fixed rate, we put him into a 2/28 loan to get him a lower rate for those initial two years. For his situation, the game-plan was pretty simple. Since we consolidated all is bad debt and he was still in a good equity position, we'd use those two years to make sure he kept making his mortgage payments on time, gradually see an increase in his credit scores and not accumulate any more debt....let alone the bad kind.
I got an email from him yesterday asking me what he should bring to closing, besides a 'smile'. I told him, "Just your driver's license, we'll supply the coffee." (1)
Today marked a day and yet another example of having a plan, following the plan, & it working out in the end. The client in this case put himself in a very good position with the help of proper guidance and now qualified for the best rates on the market. Not only did he end up saving over $300.00 a month, but now his credit is back in good standing...which will save him mountains of money shall he need to utilize it down the road. There's a lot of talk about a lot of stuff out there in regards to the Housing Market, Mortgage Industry, & overall Economic Outlook of our country. Yet, in my opinion, proper guidance & education & follow through are the necessities to put your own situation in a better one no matter what's going on in this World. I believe that is slowly becoming an Universal Truth.
(1) Of note, the author doesn't condone the use of such drugs as coffee, the borrower was a 'user' before we got our hands on him:-)
Parked and umm....
... thinking this is refreshing given the bad wrap so many ARM's are getting at the moment. Well done you!
FCEGI really needs to make some kool-aid available. And put away those ashtrays while your at it ;-)
Jennifer - Ticket!
Dan - Double Ticket!!
Marc - You noticed that, eh?
Jennifer - Thank you my dear. Still working on the kool-aid:-)
Dan - Ok, I'll forgive the Double Ticket for the kind words:-))
Parking with the top down and the radio on.
Wait.... that wasn't enough for my 25 points. Besides, how could one be sleeping and commenting at the same time.... lol
Seriously, Jason.... this is an excellent post and Brian Brady would agree with you, even though he is a legs kind of guy. ;o) Seriously... yes, again,... this is right on because of the curve and how arm prices are a good 3/4% to 1% better on 5 yr and 7 yr arms.. and for a savvy borrower with a very good loan officer, explaining the ins and outs... getting the clients goals as you mentioned, this is a great option now. It wasn't about 1 month ago and the media has ripped arms, as you mentioned, but they were 2/28's. Now, I am involved with a hedge fund investor and I am seeing millions of dollars of pools with 5/1 arms 90 days down and in default... but these are Interest Only arms.... what does this tell you... not one of them was a normal 5/1 arm...
In regards to credit issues and why so many were given 2/28's... you hit the nail on the head, that it was based on credit. And that you needed a good loan officer with a plan and getting that client on that plan. good post.
Jason...Excellent post on how adjustable rate mortgages are useful and can fit the needs of some buyers. The important thing is to get advice from a mortgage professional and find the correct mortgage product that fits your situation.
What's wrong with coffee?
My Sandra... Just figures that you're lounging around in some convertible instead of practicing our dance number! Don't expect Lisa and I to carry your weight. If you don't get serious about this gig, we'll have to relegate you to a suspended cage during our performance. And how would that look?
Jason, Excellent presentation and I LOVE the footnote and the graphic!
Jason - ARMs have their place in the market. My personal residence is on an ARM. We did that intentionally and with full knowledge of the changes coming down the road. But we had our own reasons for doing it that were not credit related. But since we are investing in multiple properties we kept our primary payment low for a few years until we got the 'acquisitions' out of the way. Now the portfolio is complete, the net worth has increased and we will be converting to a fixed rate soon - before the adjustment period.
I think that at some point people were sold an ARM for all the wrong reasons, and in their effort to obtain a home at all costs they bought into it. Unfortunately the consumer didn't research their options or understand what they were signing, so now we have a mess.
Very few things in real estate are "one size fits all".
Sardi...
Do I really have to read all of this?
Can't I just call you if I have a question about a busted ARM? :)
Thought so :)
Don't look at me like that...I still get points even if I didn't read your post.
P.S. That smile I just put on your face was worth mouthing off for :)
TLW...ROAR!
Jason,
A 'good ARM' can be better than a 'good fix' sometimes!!! Thanks, Fran
Jason, Thanks for the assurance that a regular ARM is still a good idea. The Interest only ARM gave ARM's a bad rep and even I was confused.
Have a Fabulous Real Estate Day!
Anona
Hey Jason,
Great post and I agree, ARMs have a benficial place in the mortgage industry. I do belive the shortest ARMs should be 5 years to protect the borrower and lender against major market changes and unforseen circumstances which could affect shorter ARMs. I also believe these ARMs should NOT have any Pre-payment Penalties.
Sean Allen
Jason - You put forth a great argument for the position that there should, at least, be an argument. I concur wholeheartedly with your assessment of the suitability of a loan being unique to each individual. Furthermore, and this opinion is biased, I am happy that you are bold enough to place some of the impetus of the ultimate success of mortgage products on the borrower. The person that you recently closed was placed in the proper loan for him two years ago, and has been placed in the proper loan for him now. Same person - two different products - two different circumstances. Impossible, the media would say! But the more we as an industry can get the word out about success stories like yours, the less vilified we will be.
Jason
Great content, thanks for sharing this information. I am sure you will be finding many people looking to re-finance now.
I've been thinking this myself, as I've heard and seen ARM's blasted by everyone from the Media to ActiveRainers. I know a lot of people with ARM's who are in the right loan! Thanks for this post, Jason!
Jeannie - Different Strokes for different folks, eh? And yes, will power and self-discipline are important aspects that the borrower has to take into their own hands to put themselves in a better overall position.
Jeff - (Not Cuddling with you:-)
Sandra - You are double parked, I accept personal checks!
Jeff - Thank you sir, very insightful comment I might add.
Sandra - It's for closers so when you sell a house, you'll get your cup. Until then, no coffee for you!
Jennifer - If you had my visual cortex, you would certainly not supply such words:-)
Kathy - We've got the biggest parking lot outside of Lincoln Financial Field (The Linc). Every once in awhile, I can be understood ;-)
Debe- LOL, why thank you!
Carol - You pointed out a very good reason to take on such products, to simply get your portfolio in order. Conversely, many consumers were in a position to take them to get their credit in order to eventually qualify more attractive terms.
Cynthia - Oh so true!
Matthew - I'll do my best man, thanks.
Sandra - Now that I have to see!
TLW- LMAO, you read my freaking mind as I continued reading your comment. And I actually read your comment, how many points do I get for that?
Fran - And for either, always feel free to give me a jingle:-)
David - That they do and that's why I always cringe when people discuss among friends and families and neighbors the particulars on their mortgage. You have little idea of the other person's situation and why they are in the loan they are in.
Anona - With some of the products coming out, a lot of people were getting confused. That's a recipe for disaster.
Sean Allen- It is my understanding that the whole idea behind pre-payment penalties is to guarantee a certain return on an Investor's investment. I will say that having a 2 year adjustable and 3 year pre-pay should not be legal...as it's unethical in my view.
Joe - (Passing the cup.....)
Sis - I do love those referrals:-)
Steven - Excellent commentary & contribution my friend!
Scott - I learn from one of the best! Now give me that coffee until you close a loan;-)
Michael - That's important for any consumer of any product...to do some homework. Knowledge can be a wonderful thing.
Gary - There is a heavy need out there.
Margaret - Thanks Margaret and I concur. Rash generalizations usually do little but ruffle feathers that are in the rightful place.
Michael - Very nice analogy to sports cars....well done!
Sardi, it seems a day for feature post. Congrats on yours.
Now, to the meat of the post. I have to agree with you. ARMS are not for everyone. My guys will not push them, but when a customer comes calling for one, we will gladly help. Lately, it seems that the product is getting better as far as the rates are concerned.
Just my 2 cents worth.
Danny - Your 2 cents are always appreciated. I hope all is well amigo, look forward to speaking with you soon!
Dead on, buddy. What's good for some is not good for all. Kinda like cars, music, movies, real estate, etc. Funny how that works, huh? Yet so many people are fooled into believing that just because something is good for them, that it's good for others...or just because something is bad for them, then it's bad for all. Nice job.
Jason,
One of these days the talking heads of media and the ill-informed will think before they speak. Loan products are very individualized and that is precisely why it is so important for home buyers and home owners to work with only a Certified Mortgage Specialist, one who really understands the products available and can analyze the clients entire financial situation. That's why its so difficult in the mortgage industry, you have all sorts of people who are unqualified giving advice. And you also have people working as part-time "loan officers" ???? To be an expert you have to work full time, it just changes so rapidly.
Great information Jason.
Great post! I agree, ARM's can work for the right folks in the right situations & that is why they are there. Hey, reality is I say this from the side of a consumer who has an ARM on my current residence & it works for me for I understand the pros & potential cons to it. In my case, as many americans, it is the right product for it benefits me more than other products out there given my situation.
Laughed out loud at the title and the graphic. Somehow I read "My Arms aren't broken" instead of what you have here, but it works perfectly either way. I am so chicken fried right now, I can barely see straight.
still remembering that terrific poem you wrote and posted here recently.
best
Jason,
This is a great example of how we should approach our clients. By finding out their specific needs and finding a solution that fits those needs, we are able to take the best care of them. It appears that this ARM was the solution to your clients needs, but only time will tell if he sticks to his guns and follows through with the plan. That's where so many others went wrong.
Good job with your client and thanks for another great post.
I just tried to call you...
I am so not a message leaver :)
Is that too vague for you? :)
TLW...ROAR!
Lola - That's very true. Stretched equity positions and borderline credit has put many in the mess their in, lenders & consumers.
David & Kristin - Thanks. Yup, it works the same for a lot of products that we as consumers buy. One man's soup is another man's sandwich, eh?
Patti - I don't know how anyone can do this gig part-time. Everybody starts somewhere, but it's so very hard to do this with any semblance of competence on a part-time basis.
Joey - Heck, that's the right loan for a lot of people at first. Thanks man!
D. Bass - The media....don't get me started:-)
Robert - Personal responsibility is something we have to work on in this culture.
Josh - There is a time and a place for most products out there.
Gary - "Chicken Fried"....I like that term;-)
Andrew - A lot of the credit should also go to this client, thanks!
Christy - Guilty As Charged:-)
TLW - Did you? Yes, you are vague. I should know, we can smell our own.
Greg - Guidance and education are key, always will be. Thank you my man!
Well said Jason! I think people who say that the ARM was a bad loan and they should abolish it fools. There are cases like yours described above that it works perfect for, I personally used it a lot for investors who plan to only own a property two years before the do a 1031 exchange. No reason to pay a higher interest rate when you know you are going to sell at the end of two years!
I'm not sure that ARMS in and of themselves have a bad rap, but rather the way they have been presented. Going through a mortgage process is confusing enough for many people, and it is easy to take advantage of people who want the American dream, but are not real savvy on understanding finance. So, perhaps it is safe to say that an ARM's best advantage is in the mortgage person who is the presenter, and that person's integrity and ability to make the client understand completely the good and possible bad ramifications of having an ARM. The abuses that have occurred relative to the ARMS are complex, and not simply explained. Just my opinion.