Posted by ReneeK_MI on 4/11/11 5:31am
Msg #379404

Heads up on 'hybrid' ARMS ...

IF you, like me, go through the Note & point out the terms ...this one was super-sneaky!

Titled "Fixed/Adjustable Rate Note". Went through loan amount, initial interest rate, first/payment dates, P&I payment, change dates, change rates ...

Borrower says "I thought it was Interest Only?" I look again, see NOTHING indicating I/O. Borrower says he wanted I/O, was supposed to be I/O ...I begin reading through the verbiage.

Caught it in the P&I payment section fine print - Interest Only until the first change date (10 years).

Had the Borrower NOT been fully engaged in all this, I'd have NEVER caught it, and that really freaks me out. Nowhere else in the pkg was there even a hint that this was I/O. Maybe I missed the memo, but I've never SEEN such a thing before - has anyone else??

The implications are what freak me out - I don't want to stop pointing out the key terms following the above standard/typical presentation, but I certainly am not going to hold myself responsible for READING the *&#$ Note's fine print. I'm still not happy about the ARMS being re-wrapped as "Fixed/Adjustable" ... now this?!

Reply by Julie/MI on 4/11/11 7:41am
Msg #379409

Re: Heads up on 'hybrid' ARMS ... Glass half full :)

While the interest only was in the fine print, the CONSUMER WAS FULLY AWARE! Which is certainly a refreshing change

Reply by MW/VA on 4/11/11 8:03am
Msg #379411

Very interesting--thanks for the info. n/m

Reply by PAW on 4/11/11 8:21am
Msg #379413

Remember doing lots of these Fixed (I/O)/Adjustable with builders and investment buyers. Don't remember ever seeing one for a non-investor buyer. And the first period wasn't 10 years, more like 1 year. But, with today's market, this type of loan just may take hold for young buyers who plan on the market values going up and/or doesn't plan to keep the property too long.

As for "I'm still not happy about the ARMS being re-wrapped as 'Fixed/Adjustable'" There are some lenders who have always titled their products as Fixed/Adjustable rather then an ARM, especially if the "Fixed" portion was for an extended period of time like 5 or 10 years.

Reply by JandB on 4/11/11 10:05am
Msg #379416

I go through the terms for a simple fixed rate loan. If it is anything else I ask the borrower to take a few moments to read the note to be sure it states the terms they are expecting. It's too easy to make a mistake otherwise and those mistakes can come back and bite me..."but the notary said."

Reply by Linda_H/FL on 4/11/11 10:18am
Msg #379418

Terms are also re-iterated on page 3 of the HUD now...so hopefully pointing out the note terms and page 3 of the HUD takes it beyond "but the notary said" to "crap, I didn't pay attention"....

My practice: After reviewing note terms and HUD I ask "Is this what you were expecting?" and "Any questions?" just to play it safe.

Reply by JanetK_CA on 4/11/11 3:02pm
Msg #379453

I disagree. I think those "other loans" are the ones where it's most important to go through the terms with the borrower. I don't "explain" every aspect of their Note, but I point out all the key features so that they know what to look for when reading it over in detail and so they know what the numbers and terms are.

I think the fact that a Note is interest-only for X years is a pretty important bit of info! I want them to at least know what the key elements are of their loan. All too often, I've had people say they know exactly what they're looking for and don't need me to review it with them, only to later ask me a question about something that we would have covered if I'd walked them through it.

Renee, I used to see a fair number of those loans, although if memory serves, most of them were I/O for 5 years. Haven't seen one in a long time, though. And yes, the borrowers USUALLY were well aware of it.

For the right person, these loans can be a pretty good deal. If the person KNOWS that they will be selling the property within a certain number of years, it can save them lots. If they're NOT clued in, then when the I/O period expires and their loan payment suddenly takes a huge leap, it could be devastating.

Reply by Teresa/FL on 4/11/11 9:31pm
Msg #379478

I closed two of these loans within the last 30 days. One refi and one purchase.

I also look at the note terms ahead of time whenever possible and almost didn't catch the IO feature the first time. In both cases, the borrowers knew and understood the terms so at least the LOs are doing a better job of disclosing than in the past.