They’re BAAAACCK! Oh my GOSH!!!


The new boogie-man: Adjustable Rate Mortgages

Inquiring minds are laughing at the simpletons of the media who for years loved easy credit because they thought you didn’t have to really work. Then, as things got tough, these Delta-brains who barely got into college (College of Communication is almost always one of the two lowest academically on a university campus) decided that they were bad in a certain market and therefore are always be bad.

If only life were so simple.

Unfortunately, these people get lost among trees while looking for a forest to hike in. They are the same ones who see a couple of hundred people die in gun accidents per year in a country of 300+ million people and never realize that there are untold numbers saved by those very same guns that never ‘show’ up in statistics because they survive muggings, carjackings, rapes, and all sorts of violent crimes.

Today’s example is the brainiacs over at CNN and their reporting of the return of adjustable rate mortgages. Never mind that this one loan did more getting good credit risks into their own homes. No, if they were misused, then they are BAD forever and ever:

NEW YORK (CNNMoney) — Adjustable rate mortgages are back!

After accounting for nearly 70% of all mortgages issued during the boom, ARMs vanished during the bust, totaling just 3% of the market in 2009. Now they make up 5% of all mortgages issued, and Freddie Mac predicts 10% by December.

“For anyone with a high likelihood of moving soon, the 5/1 is a great product,” said Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association. “It’s a well understood product too; there’s not a lot of danger with it.”

So why isn’t everyone grabbing an ARM?

Well, because fixed-rate mortgages are seen as safer because they carry the same rate over life of the loan. Borrowers always know what their payment will be.

The staff writer, Les Christie, must not be the sharpest tool in the shed. He totally misinterprets the above quote by Michael Fratantoni from the Mortgage Bankers Association. When a banker says a program is good…he is saying it is good for the bank.

This is easy. Inflation is coming and the banks are afraid of having a large portfolio of low interest bearing loans for the next 30 years. It could be the 70’s all over again. Few people remember that over 75% of the Savings & Loans were tecnically bankrupt by the end of Jimmy Carter’s one-term reign for pretty much the same reason.

This is just another sign that inflation is coming. Hyper-inflation? No, not a sign of that. But if it was to come, then the banks need to transition to ARM’s even more.

And, even though these might be good-to-great products for the bank, it doesn’t necessarily mean that it is bad for the public. As is almost always the case, a product has its market. ARM’s get people into homes when they can’t afford an 20-percent down, fixed-rate loan.

Don’t forget, many families will get left behind when inflation hits and they aren’t already in a home. Those families will then be forced to chase the market up. And that is not exactly a perfect scenario either.

So, for families wanting to buy, then maybe an ARM is right for you and your family. Just make sure you can make it through the transistional period. Rates tend to go up before wages. Save as much as possible from now until the time inflation kicks in. You will need that cushion. But after that you and your family will be extremely relaxed!

Please do not take this as an endorsement to buy. Presently, very few people should be purchasing. Residential real estate is on its way down.

That said, inflation is coming and prices will go up.

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