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Thursday, February 07, 2008

Neutron-loans - the delayed fuse component of the sub prime crisis

Originally uploaded by sbove
Exploding ARMs Roil Bernanke's Drive to Calm Markets

"We call them neutron loans because they're like a
neutron bomb,'' said Brock Davis, a broker with U.S.
Express Mortgage Corp. in Las Vegas. ``Three years
later the house is still there and the people are

Once option ARM borrowers' loan balances reach a
predetermined limit, called a negative amortization
cap, usually 110 percent to 120 percent of the
mortgage amount, their payment rates immediately
increase. They also automatically shoot up after five
years. Otherwise, increases typically are capped at
7.5 percent of a borrower's initial payment per year.

One in Five

``These could be called long-fuse, exploding ARMs,''
said Kathleen Keest, former assistant Iowa attorney
general and now senior policy counsel at the Center
for Responsible Lending in Durham, North Carolina.
``I've heard people say they are the most complicated
product ever offered to consumers. They are the real
liar loans.''

The loans accounted for 8.9 percent of the almost $3
trillion in U.S. home loans made in 2006, up from 8.3
percent in 2005, according to an estimate by industry
newsletter Inside Mortgage Finance.


  • As long as Carthage is bein' salted, all is fine.

    So sayith the salt mine owners.

    Stay on groovin' safari,

    By Blogger Tor Hershman, at 11:10 PM  

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