Adjustable Rate Mortgage Loan Program Disclosure: Fill & Download for Free

As home values started skyrocketing, home buyers could no longer qualify for a traditional loan with a fully amortized payment.The industry moved to selling adjustable rate mortgages and home buyers were qualified at the initial starting interest rate and lowest payment.If the borrower could not afford the higher payments once the rate and payment went up, a home owner could just simply sell the home because home values were increasing so dramatically. If the home owner defaulted on the loan and the lender decided to foreclose, someone would bid on that home at the foreclosure auction and the lender would get back everything it was owed! Principal, interest, missed payments, penalties....It was a game that was rigged so nobody lost. Since the lender received back all its losses at the foreclosure (people were outbidding each other at the foreclosure auctions) then the subprime lenders....who had lost NOTHING from that foreclosure, kept lending money, earning fee income and interest and losing nothing. The party seemed as if it would never end.NOTE TO Anonymous: Go see "THE BIG SHORT" movie.As home values climbed even higher, new ARM programs were introduced to the subprime (lower quality) borrower: The Pay Option ARM with an even LOWER initial monthly payment.The statistics on the Pay Option Adjustable Rate Mortgages are deplorable.94% of the people were steered into the Pay Option ARM only made the lowest, minimum monthly payment.Out of that^ number, 46% of those loans went into default.Another piece worth mentioning is that real estate agents LOVED adjustable rate mortgages because home buyers could afford a much, much higher priced home when they were qualified using the lowest payment. The real estate commission is based against the sales price, so a higher price meant more commission dollars for the sales agent.About 20 years from now, we are all going to look back and realize that, love or hate it, the industry absolutely needed to have The Dodd Frank Wall St Reform Act passed. Today, in 2016, we no longer qualify home buyers using the starting/lowest rate on that Adjustable Rate Mortgage. We must fix that rate for 5 years for Qualified Mortgages and if we want to write a Subprime ARM loan (which we call Higher Priced Mortgage Loans) we must fix the rate for 7 years.The industry couldn't make the ethical decision to make sure people had the ability to repay their loans. There was and still is too much greed involved. The industry must have the government tell us how to lend ethically. Sad, but true. Government regulation by force is the only thing the mortgage lending industry listens to.Many consumers were steered into subprime loans (and subprime ARMS) not because they were poor credit risk borrowers, but because the loan originators were offered bonus money behind the scenes to steer people into a "subprime" loan (higher rates and fees.) This practice of steering became illegal in all 50 states on April 5, 2011. Once again, the government is the one who sets the rules because the industry could not ethically self-regulate the rampant greed.In addition, many consumers self-reported that they didn't realize they were getting an adjustable rate mortgage because their loan originator told them they were getting a fixed rate loan! The radio ad said, "fixed rate" and the disclosure forms said "fixed rate" but when they signed their final loan documents, the mortgage product was an adjustable rate. The average random consumer missed the teeny, tiny box that was checked next to, "ARM" on the disclosure form and were surprised when it was later discovered that they had signed papers for an adjustable rate mortgage. Most consumers didn't really read the forms. The Dodd Frank Act created The Consumer Financial Protection Bureau, and the first thing they did was to create new disclosure forms, which went into effect October 3, 2016. You can take a look at the new forms here:Know before you owe: Mortgages > Consumer Financial Protection Bureau Hope that helps!

Great question,If you are working with any reputable mortgage company there should be NO programs with an early payment penalty, but definitely ask and read every line of an adjustable rate mortgage disclosure before you decide on that path.You can also read the FNMA/FHA/VA/USDA/FHLMC disclosures but none of them have verbiage that could surprise you. (Now, somebody will say you need to read everything and yes. you should but you can not change a period on those and there is a long list of people before you that seem to be doing okay.)To qualify this answer. I do not like ARMs at all and seldom see an advantage. Many people refinance at the half life of the fixed term because they are afraid of a big jump in payment.There are also different kinds of caps (max a rate can move after the first term and then every year from there). 2/2/5 or 5/2/5 are common. the first number in the sequence means that your mortgage rate can go up a maximum of 2% as in the first example or 5% in the second example. The last number is the maximum lifetime cap the loan can go to based on the index that your ARM is tied to. Writing that gives me stomach pains.So, quick answer…NO. The rates aren't dramatically different than a 15 year fixed because as this is written, the yield curve that is a portion of how rates are determined is flat. in other words, you could probably get a 5 /1 or 7/1 at almost the same rate as the 3/1.I have to be candid again. I do not love 15 year mortgages. The reason why is there is no way to slow them down if you have circumstances that require you having a lower payment. The 30 year rate is a bit higher but worth it in my opinion.This happened to me during the bust in the market. I have a home and a cottage. The rates were fantastic so I refinanced both homes . The 15 year rate was significantly lower than the 30 year rate . The market COLAPSED and consequently so did my income. I couldn’t refinance to slow the mortgage payments down because I couldn’t qualify under the new guidelines. I made it but it hurt.The other reasons why I like the thirty year rate. Your lender can give you an amortization schedule for a 15 year payback and you can always put more money down if you choose. If some unexpected event happens you just lower your payment to the lower amount 30 year payment. No asking permission or paperwork, you control it.There is another belief out there that says that I can say that I will pay more but most people will not follow through. That is why I recommend you setting up auto-withdrawal of the payment based on the 15 year pace or however much more you wish to pay. The other camp is in fact more right than wrong however my experience is if you pay your credit cards off each month, you have the discipline to do whatever you want on your mortgage. If you leave balances on your cards that you are paying up to 25% interest, you are not the right fit. If you do fall into that category, you are still better off with a 30 as long as you pay off those killer credit cards.hope this helpsMark

Although I believe many aspects of the two GOP tax proposals are morally bankrupt and fiscally irresponsible, I’m not sure that reducing the tax incentives for home ownership in our expensive housing market will have an inhibiting effect.The reason I say this is that, even though being able to deduct mortgage interest and property taxes reduces the effective cost of ownership, I haven’t seen very many people whose purchase decisions are motivated by tax considerations.In my previous life as a real estate broker and my current one as a mortgage loan officer, I would hear people say, “I need some tax write-offs,” but most people don’t even know how our progressive tax system works. When someone says, “I’m in the 25% tax bracket,” they often think that means they pay 25% of their income in taxes. This is completely false; the marginal “tax bracket” means that one pays the specified percentage of each dollar over a base amount. Someone whose gross income is, say, $100,000 will likely be in the 25% bracket. I say “likely” because we get to adjust our income with deductions and exemptions.Today, the personal exemption (we once called them “dependents”) is $4,150. A family of three will be able to claim $12,450 in exemptions.Then there are deductions. At a minimum, a taxpayer can claim the “standard deduction,” which is $13,000 for a married couple filing jointly. One would choose the standard deduction if that number is higher than what they can itemize.A married couple with one child will have taxable income of $74,550 if they choose the Standard Deduction. That drops them into the 15% marginal bracket, which covers taxable income between $19,051 and $77,400. They’ll pay a base tax of $1,905 plus 15% of all income over $19,500—$8,325. Their total income tax will be $10,230. (I’m going to disregard the $1,000 child credit in the interests of simplicity)If that same couple bought a home for $575,000 with a 20% down payment, they’ll pay about $20,000 a year in mortgage interest and $7,000 in property tax. They’ll obviously get some benefit from itemizing their deductions, since $27,000 is more than the $13,000 Standard Deduction. For the sake of this example, I’ll assume they also pay $5,000 in California income tax. Now their deductions amount to $32,000. Now their taxable income is $55,500 compared to $74,550 wit the Standard Deduction. Their income tax liability (not including the child credit) drops to $7,380—a savings of $2,850. Sweet.That’s what they save by being able to itemize their deductions under the current law. It’s not a trivial number, but it’s not a particularly motivating figure. Very few people are inclined to do the level of analysis I’ve just inflicted on you, dear reader.As long as we’re in number-crunching mode, let’s compare the two GOP proposals (at least what we’re aware of so far) to what I’ve just described.You should be aware that these two proposals are complex and massive. The House proposal, the “Tax Cut and Jobs Act,” HR1, is 460 pages—88,000 words. Just the official analysis of the bill is 320 pages. The Senate version is bigger: 550 pages and 102,000 words (yes, I counted). That mass of verbiage provides a great many nooks and crannies to hide things.One example: since 1986, there has been a program for first-time buyers of low and moderate income called Mortgage Credit Certificates, or MCC. This allows a first-time buyer whose income is below certain maximums to claim a percentage of the mortgage interest they pay as a tax credit. The credit comes off the bottom line of their taxes. Here in the Bay Area, the maximum income for MCC is $146,000 for a family of three. They’ll be able to claim 20% of the interest they pay as a tax credit. It’s a big number, and amounts to a 20% discount in the interest rate for as long as they live in the property and have a mortgage on it.One line in the House version, buried on page 76, takes the program away. The good news is that owners of golf courses can still claim their tax credits for “environmental easements.”But I digress.Both tax proposals call for increasing the Standard Deduction, but disallowing the itemization of state income taxes and limiting the mortgage interest and property tax one can claim as a deduction. The personal exemption would be eliminated.Our couple earning $100,000 would pay income taxes of $8,032 (House) or $8,379 (Senate). Compare this with the $7,380 they would pay under the current tax schedule.Oops.In fairness, I should mention that the two proposals increase the child credit from its current $1,000 to $1,600 (House) or $2,000 (Senate), so the difference in the taxes would be minimal. One of the sneaky aspects of both House and Senate versions is that the tax credits expire in 2025, so those families with children would see their taxes go up.The bottom line of this (and thanks for your patience in reading this far) is that any changes in tax law are unlikely to have much effect—if any—in the real estate market, at least in those areas, like the Bay Area, with high values and high property taxes. One argument put forth by the GOP in promoting their tax bills is that only about 30% of households itemize their deductions. It’s worth noting that all but seven states have some form of income tax that would would no longer be deductible.Disclosure: I am not a CPA or tax preparer. If anyone more knowledgeable than I am finds flaws in my analysis or calculations, PLEASE let me know, and I’ll make corrections. I’m reasonably confident in the validity of these numbers, however.[EDIT: I was asked to expand my analysis to someone in the Bay Area earning $300,000 owing a $1 million home. It gets a bit complicated (and, honestly beyond my capabilities to do it in proper detail), but here’s a back-of-the-envelope look at it. One thing to keep in mind is that the Alternative Minimum Tax, which was enacted as the “minimum tax” in 1969, then codified is the Alternative Minimum Tax in 1982. Its purpose is to ensure that certain high-income taxpayers with many deductions and shelters and corporations don’t get to skate out of paying any tax. Someone earning $300,000 would almost certainly pay the AMT. I am disregarding that part of the tax law in this case, but suffice it to say that the AMT would be repealed by either version of tax reform.I’m assuming that the sample case would be a married couple filing jointly, with $300,000 gross income. They may or may not have children, but at that income level, the child tax credit would phase out anyway. The couple owns a home worth $1 million. They have a loan of $800,000 at 4.5%, so they’ll pay about $35,000 interest. Their property tax would be around $12,500 per year. I’ll also assume that they pay $10,000 in California income tax, so their total itemized deductions amount to $57,500.Their Taxable Income under today’s tax code would be $234,200 (300,000–57,500–8,300=234,200). They’d be in the 33% marginal tax bracket and would pay income tax of $52,199.Under the House proposal, they’d be in the 25% marginal bracket. Their base tax would be $10,800, marginal tax (35% of the amount over $90,000) $41,375. Total tax owed would be $52,175. That’s almost the same as the current code, but the repeal of the AMT is what would really make the difference. My guess is that this couple would pay over $20,000 in AMT under today’s code, but not under either proposal making their way through Congress.The Senate version doesn’t allow for deduction of property tax and limits interest deduction to loans of $1 million. The tax would be about the same—$52,900. Again, the AMT is the big kicker.When these guys write these kinds of bills—and it’s not unique to the GOP—they make them so complex and opaque that there are lots of places to hide things. Even things unrelated to the subject of the legislation. For example, there is a provision on page 97 of the House bill stating that “unborn persons” can be named account beneficiaries. While this may seem innocuous on its face, it is designed to advance the “fetal personhood” principle to strengthen case of those hoping to outlaw abortion in all cases.As I said earlier, I am not a CPA or tax professional. I am very open to corrections from knowledgeable people. The goal is to inform.