Option ARMs, Who Thought Up these Time Bombs?
Trader Mark
August 13, 2008
http://seekingalpha.com/article/90765-option-arms-who-thought-up-these-time-bombs
I read about the option ARM as the cover story October 2006 [Nightmare Mortgages]. Another absolute read.
As to the latter article - what's an option ARM you ask? Well after Alan Greenspan lowered rates to HISTORICAL lows, the golden era of adjustable rate mortgages was birthed. Why adjustable? Because despite historical low fixed rates you could only buy so much house at each income level with fixed rates in the 5% ranges. So we needed to find something more to qualify more buyers and goose home prices.... adjustable rate mortgages were the hot thing. But when adjustables with 10% or 5% down disqualified too many people we moved to a new era - the 0% down adjustable rate mortgage. This was dangerous territory - keep in mind the adjustable rate was many times at a teaser rate far below the "future rate" once it adjusted upward. Now I'm a well read person so I knew about this part - but not until I happened upon the BusinessWeek article did I learn about a new invention - the option ARM. This was for the person they could not qualify at 0% down, with teaser rate. So the Frankenstein was created - a mortgage where you don't even pay enough to pay down interest - at the end of each month, you make your payment, and the difference between what you would pay on a normal mortgage and what you paid on this mortgage is added to the principal. Meaning you OWE more on the house each month. Ridiculous you say? Nope! Not if the home price goes up every month, preferably at an annualized rate at 20% a year as we know all homes do! It's GENIUS. (on Wall Street)
The super cool part is we package these loans, mix them up with a bunch of other mortgages, sell them to "super smart" hedge funds with "sophisticated risk" models - along with institutional buyers across the world - and call it a day. Everyone wins.
Internet Censorship Alert
Internet Censorship Alert: Alex Jones exposes agenda to 'blacklist' dissenting sites (March 14, 2010)
As I predicted, the Obama Administration is trying to shut down the Internet - at least the parts he doesn't like. Barack Obamas regulatory czar, Cass Sunstein has stated that he wants to ban conspiracy theories from the internet. Think about what this means - Every video, every website, every blog, every email, that exposes or just criticizes the government for any reason whatsoever could be labeled a "conspiracy" and taken down. Your home could be raided in the middle of the night, and you could be carted of to jail for criticizing the government. All they have to do is call it a "conspiracy theory".
http://www.youtube.com/watch?v=aqAWmBLFodE
Thursday, August 14, 2008
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