Artful Dodger: There is a good use for ARMs, one example is the bussiness man that transfers frequently but still wants to have his family live in a house, ARMs save that person a lot of money. It's the quotas that were pushed on the banks by the likes of ACORN that caused the trouble

Artful Dodger: I had an arm to purchase my first real estate, also no money down and no documents as well... I got 2 years of payment history and then refied into traditional 30 year with equity as a 20% down payment.

Point is, the sub prime worked for me, without it I would still be a renter, instead I now have an apartment building that pays for itself and a 3 br 2 1/2 bath home in the country with 2.6 acres (also bought with no money down)

anyway, not for everybody, and people have to make sure it works for them, be smart, but they do work for some people!

Artful Dodger: Of course the banking system needs regulating, not only that but all parts of the financial system. I mean.... I use to run a P/L dept and we had auditors every year.

But... governments have been quite happy to leave them as they are as it helps in the ol boom and bust economic policies that we've had to put up with.

... Maybe a ban on our governments using the B&B system would also be helpful.

Artful Dodger: maybe i dont understand, but doesnt an arm mean that their rates adjust with the current rates? If so, with and arm their rates should actually be going down, if not at least where they started when they took the loan (maybe they can only go up but not down with the current rate?)

Czuch: It's not just that Czuch... But home owners (at least over here) are facing a negative equity problem where their house is worth less then what they paid for it.

Not good.

(V): That is a legitamit problem, a casualty of the market bubble that fortunately is hitting the high end homes more than the mid-low end homes

Vikings: They recon house prices here will fall possibly by upto 30%

Artful Dodger: Thats not the fault of the Arm, Why didn't she simply refinance to a 30 year, she sure should be smart enough to know that going in, oh that'sright, you said she was in education, that explains it, .
But seriously, An ARM is nothing more that a tool like a credit card it has to be used wisely, And unfortunately many people are not smart about finances

Vikings: I agree, just because something is available does not make it the right way to go. Some people, an interest only loan is good, if you want low payments and dont care about equity, an arm may be good if you dont plan on having it too long or if you think rates are on the way down


I can agree with regulations that guarantee full discloser, not just in the fine print... but thats why we use mortgage brokers and dont just do to a bank ourselves looking for a loan. But a good broker will give you all the angles before they sell you a loan,and they should be required to as well

Artful Dodger: but dont interest rates of an arm go down when rates are low like now?

Czuch: Another factor in the interest rates is the equity to loan value, that is to say that if you have 20 percent equity in your home then you will pay a lower interest rate than if you have 5 percent,
another casualty of the bubble

Artful Dodger: So when I see someone on tv today telling me they are losing their home because of their arm, they are just lying, because rates right now are at all time lows and anyone with an arm is actually paying less now than when they bought the loan in the first case!

Artful Dodger: Like vikes said, some people arent in their house very long, and want as low a payment as they can get, an arm gives them that lower rate and they are out of their house before it adjusts up.

Opposite with interest only... you are planning on being in the house for 30 years, you want as small apyment as possible, and you dont care about creating equity except that what you will get from your value going up over 30 years

Artful Dodger: oh that's right, you are an educator , seriously tho, and ARM is just a tool, as Czuch points out a long term buyer wants the stability of a fixed rate at a higher rate, it will be lower than an ARM in the long run while someone who will be in their house a short time or is flipping the house would be better suited with the ARM.
While banks should make this clear, it's not their fault that many people are not savvy about finances
Also remember that most lenders bundle and sell off loans and don't get hurt by people that default

Artful Dodger: I think it's a case of people getting loans with an ARM that haven't the credit rating or a good enough deal to get the 30 year at a good rate, they probable shouldn't have bought the house in the first place.
about the people defaulting, it's a combination of people that were flipping and got caught in the bubble, people that have lost their jobs or people that their value has dropped and it makes more sense to just let it default, their are more reasons but these are the big 3, usually people telling their personal story on a news/commentary show aren't telling the full story