| Loan Comparison: Interest Only Home Equity Loans Versus Balloon ...
What is an interest only home equity loan? This is a loan where the principal borrowed is not paid back each month only the interest is repaid. The principal borrowed may be due in 10, 15 or 20 years. A borrower may decrease the amount of principal due in the future by making payments on the principal. Interest only mortgages may be adjustable rate mortgages (ARM) or fixed rate mortgages. A fixed rate mortgage will have a set payment for the period of the loan. ARM mortgages will have a fixed rate initially for a six-month period, and then the rate will increase or decrease based on an index, prime rate or five-year treasury rate. A balloon second mortgage is a short-term mortgage with a fixed rate of interest. Balloon mortgages require repayment of principal and interest.
Fitch Rates STARM Mortgage Loan Trust $730MM Series 2007-2
The 'AAA' rating on the senior certificates reflects the 4.25% subordination provided by the 2% class B1, 0.75% class B2, 0.60% class B3, 0.35% privately offered class B4, 0.30% privately offered class B5 and 0.25% privately offered class B6. The ratings also reflect the quality of the underlying collateral, the strength of the legal and financial structures, and the master servicing capabilities of Wells Fargo Bank, N.A. (rated 'RMS1' by Fitch). All of the mortgage loans were originated by SunTrust Mortgage, Inc. (SunTrust). As of the cut-off date (March 1, 2007), the pool of loans consists of 1,129 recently originated interest only and conventional hybrid, adjustable-rate, fully amortizing Mortgage Loans secured by first liens in one to four-family residential real properties.
Adjustable mortgage woes ripple at local level
A mortgage loan, even at high interest because of a low credit score, equaled owning a home. The so-called subprime loan - a no-money-down, adjustable-rate mortgage - was the only alternative for many in Corpus Christi and nationwide. Those adjustable rates adjusted upward, faster than a significant percentage of borrowers could afford. The unhappy result of subprime loans has become the prime-time issue - "Mortgage Meltdown," CNN called it. It is generating congressional hearings and is becoming a presidential election issue. Local lenders say the lesson for aspiring homeowners is to improve their credit and understand what they are getting into when they begin the home-buying process. Steven Perez, a mortgage banking lender for Wachovia in Corpus Christi, said the situation in the subprime market has caught the attention of the nation because changes started happening, literally, overnight.
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