Post by unlawflcombatnt on Aug 13, 2007 15:14:54 GMT -6
Below are excerpts from an article in the Orange County, California, Register titled
Exploading loans: A primer
(The article is actually in the sidebar)
"Subprime loans come in many varieties....
Here are the most common loan types....
Hybrid ARMs let borrowers qualify at a low fixed rate, then shift to a much higher floating rate in two, three, five or seven years. Since payments typically rise 30 percent or more when the loan resets, critics call these "exploding ARMs."
Nationwide, 80 percent of subprime loans are hybrid ARMs....
Piggyback loans consist of a first mortgage and simultaneous second. The owner pays little or no money down, betting that prices will rise. If prices stagnate or fall, the borrower is trapped....
Interest-only loans give borrowers a two- or five-year holiday from paying the principal. They have to make up for the break by paying the deferred principal later.
Nationwide, one in every four subprime loans is interest-only....
Balloon payments also defer principal payments. Typically some or all of the principal is delayed until the end of the loan period, and borrowers must refinance....
Prepayment penalties punish borrowers who refinance within two years of getting a loan. Typically the penalty equals 2 percent to 3 percent of the loan value – not a big deal if home prices are rising but a trap if prices are stagnant or dropping.
Nationwide, two-thirds of subprime loans carry prepayment penalties....
Negative-amortization loans let borrowers increase their debt. The debt still must be paid – often after the loan has reset to a higher rate...."
Exploading loans: A primer
(The article is actually in the sidebar)
"Subprime loans come in many varieties....
Here are the most common loan types....
Hybrid ARMs let borrowers qualify at a low fixed rate, then shift to a much higher floating rate in two, three, five or seven years. Since payments typically rise 30 percent or more when the loan resets, critics call these "exploding ARMs."
Nationwide, 80 percent of subprime loans are hybrid ARMs....
Piggyback loans consist of a first mortgage and simultaneous second. The owner pays little or no money down, betting that prices will rise. If prices stagnate or fall, the borrower is trapped....
Interest-only loans give borrowers a two- or five-year holiday from paying the principal. They have to make up for the break by paying the deferred principal later.
Nationwide, one in every four subprime loans is interest-only....
Balloon payments also defer principal payments. Typically some or all of the principal is delayed until the end of the loan period, and borrowers must refinance....
Prepayment penalties punish borrowers who refinance within two years of getting a loan. Typically the penalty equals 2 percent to 3 percent of the loan value – not a big deal if home prices are rising but a trap if prices are stagnant or dropping.
Nationwide, two-thirds of subprime loans carry prepayment penalties....
Negative-amortization loans let borrowers increase their debt. The debt still must be paid – often after the loan has reset to a higher rate...."