Are borrowers more financially savvy now than before the Millennium Boom?
- Yes (61%, 44 Votes)
- No (39%, 28 Votes)
Total Voters: 72
Homeowners are trading in their adjustable rate mortgages (ARMs) for fixed rate mortgages (FRMs).
Of all the home loans refinanced by Freddie Mac in Q2 2012:
- 30% were for shorter than the original loan term;
- 95% were refinanced into FRMs; and
- 81% of hybrid ARMs were refinanced as FRMs.
Of the home loan refinances completed through the Home Affordable Refinance Program (HARP 2.0):
- 95% of ARMs were refinanced as FRMs; and
- 25% of refinanced loans were for shorter than the original loan term.
first tuesday insight
Homebuyers during the Millennium Boom bit off more than they could chew by taking out ARMs with initially low teaser rates. Intoxicated by easy financing and the scent of cheap cash, buyers foolishly acted on the fallacious advice that the property securing their loan would inevitably appreciate, allowing them to either flip the home for a profit or refinance into an FRM before the rate could increase. Now, five years after the bust, those who have a choice in the matter (read: positive equity homeowners or underwater homeowners current on their monthly payments and qualifying for HARP 2.0) are choosing what has always been the wisest home finance option: FRMs.
The switch from ARMs to FRMs indicates homeowners are sobering up and the housing market is steadying alongside more conservative lending practices. Homeowners transitioning to reduced-term FRMs have the financial wherewithal to stay in their homes and make consistent mortgage payments, sometimes even greater than their pre-refinance payment. The ratio of FRMs-to-ARMs is also a measure of stable pricing since ARMs are typically originated when property prices are out of homebuyers’ reach, causing them to overextend themselves.
Related article:
Recent revelation of the Libor scandal has proven the greater reliability of FRMs vs. ARMs for home financing. ARMs are indexed to Libor, whose rate has now proved to be corrupt and a contributing factor to the housing bubble. In contrast to ARMs and the compromised Libor rate, FRMs are indexed to the world’s gold standard benchmark: the U.S. Treasury note. Considering a borrower’s patently unpredictable financial future, the complexity of the economy and the corruption of the Libor, ARMs have been thoroughly booby-trapped for homebuyers and now everyone knows it.
Related article:
Kudos to the majority of refinancing homeowners who have wised-up since originating their purchase loans. For the 5% who jumped from one ARM to another: the inevitable can only be delayed so long.
Re: “Freddie Mac: 95% of Refinanced Borrowers Opted for Fixed-Rate Loans” from DSNews
Homeowners are not switching to fixed rate mortgages from ARMS because “homeowners are sobering up.’ They are switching because it is the rational thing to do now when fixed interest rates are so incredibly low and adjustable rate mortgages will undoubtedly go up at some point in the future. This is a once in a lifetime opportunity to lock in very low fixed rates and even a drunk person could figure that out.
At other points in the interest rate cycle, namely when fixed rates are at a high levels, the most sober choice might very well be to choose an ARM if the spread between a fixed rate and the ‘real rate’ (index plus margin) of an ARM is sufficiently great, say 2% or more. Over the past 30 years, buyers who chose ARMs at those points undoubtedly paid a lower average interest rate over time than they would have paid on the fixed rate mortgage available at that time.
Not all ARMs use the LIBOR index. And, in any event, the LIBOR misbehavior resulted in lower LIBOR indexes which benefited borrowers at the expense of savers and lenders.
It is no secret by now to any truly informed person that this world’s economy and financial structure are controlled and manipulated by a banking cabal composed of a few elite families who manipulate the financial markets, fabricate investment vehicles and interest rates, and otherwise deceive the masses into believing that they are controlling their own destinies, when in reality they are at the mercy of the elite.
The goal of this cabal, is, has been, and always will be to increase its own wealth at the expense of the masses of the human population, who continue to be robbed. Only now, they are doing it more and more blatantly by the day.
Fractional reserve banking is the biggest ponzi scheme ever foisted upon mankind, and it does not take a genius to figure out that ALL ponzi schemes eventually collapse. The inevitable march we are now stepping to is the path of financial collapse. Derivatives are a case in point.
Is collapse a bad thing? In the interval it will cause some pain and chaos, maybe even total financial ruin for some, but as the old rotten controlled and manipulated system is finally laid to rest and the perpetrators arrested (as has been happening worldwide if you are reading your news), we can see a glimmer of new hope for mankind, who can then live free of the control of a totally lecherous tightly knit insider group of elite whose goal it always was to financially enslave them.
In the future we will have institutions whose purpose is to help everyone, not just an inner core of unscrupulous, greedy, and lying blood-suckers wishing to feed upon all the rest of us as they make themselves trillionaires while driving us into poverty.
Meanwhile, if you have funds in any type of paper investment, we would suggest you reconsider. Another wise move might be to immediately remove any funds from the cabal banks (JP Morgan Chase, B of A, Citi, Wells, etc), generally the largest and most well known, and place it with banks operating locally. Should a financial crisis occur suddenly, your money is MOST vulnerable in the least stable banks (the cabal banks). Do your homework. Chase is rated D+ by the way.