| The Option ARM Loan: Turning the American Dream into a Nightmare
At first glance, an Option ARM loan can seem like a great opportunity for someone who is looking to purchase a home with the lowest monthly payments possible. An Option ARM mortgage starts out with low "teaser" interest rates that are only good for a month but are extremely appealing. An Option ARM loan also offers the borrower his choice of payment type: a minimum payment, an interest payment, or an amortizing payment. And the minimum payment can be seductively low, offering a borrower with limited cash flow the chance to buy a larger property than he expected to be able to afford. The problem is that if a borrower makes only the minimum payment on his Option ARM mortgage each month, he will quickly find that he is sliding into debt. As the teaser rate expires and the actual interest rate rises, the borrower's minimum payments will not make a dent in the actual loan principal nor the interest that is rapidly accruing.
Gorge yourself on the lending fat
A BATTLE is being waged in the fiercely competitive mortgage market. "The days of baking a cake for your bank manager are long gone," said InfoChoice general manager Denis Orrock. "They should be baking one for you." The rise in non-bank lenders, mortgage brokers and wider availability of low-doc loans means lenders will do anything to make their products more attractive. Mr Orrock said the major banks were pricing their home loans 4.5 percentage points above the cash rate in the early 1990s. Today it is about 1.7 points above the cash rate. "That's a dramatic compression of margin and that's continued as non-bank lenders, regional banks and foreign banks have also become quite aggressive in the national mortgage market," he said.
Arizona home of much mortgage fraud
The ranking comes from an annual survey by the Mortgage Asset Research Institute. The data comes from the country's biggest lenders. The rankings are based on the number of mortgage fraud cases per total number of home loans. Arizona jumped from No. 23 to No. 7 on the list, the biggest jump in mortgage fraud from 2005 to 2006. This is the first year, Arizona has had such a high ranking. Analysts say that jump is the result of s high number of cash-back deals, in which people get a loan for more than a home is worth and keep the extra money. According to lenders, that kind of scam not only inflates home prices and costs the lenders millions in bad loans, it also means recent buyers might owe more than their homes are worth. The Associated Press contributed to this report.
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