CONTINUE READING: CALENDAR ARMS ACCOUNT FOR TENS OF MILLIONS OF ILLEGAL FORECLOSURES

CONTINUE:

The loan product was called an ARM and the product was a home loan using the same home for security. ARM means “Adjustable Rate Mortgage”.  This is different than a “fixed mortgage” in one simple way.  The terms of a fixed mortgage are less risky in that your interest rate is fixed at one percentage for the whole term of 30 years or so in today's approach.  That means that if your monthly payment is $1,251.36 for your first payment then $1,251.36 will be your payment for the next 29 payments. You can depend on your payment never changing until your home loan is paid off.

The Adjustable Rate Mortgage is more like a bet.  Not really an onerous one, but it is probably better suited for a borrower who is a little more sophisticated.  You see your monthly payment in this type of loan can float with the interest market. If interest rates go up during the term of your loan then your interest and your monthly payment will go up.  However, if interest rates go down then so will your loan interest go down which will lower your monthly payment. If the interest rate remains the same for the long term, then your payment will remain stable and unchanged.

That whole scenario isn’t really so bad.  If you choose a fixed rate, then you know your payment will go up on you and putting pressure on your household to make a higher payment.  That is safe and sure.

If you choose an ARM then your payment will go up when interest does and down when interest goes down. If it goes down then you should be gaining more equity with each payment and less equity when interest goes up. The interest in both types of home loans is tied to something stable and secure by contract. Most of the time your interest rate is tied to the rise and fall of the interest rate of the US 10 year treasury bond. Sometimes it can be tied to the LIBOR which stands for The London Inter-bank Offered Rate, which is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting rate is usually abbreviated to Libor or LIBOR, or more officially to ICE LIBOR.

Both of these rates have proven stable and secure over long periods of time.  Neither should cause catastrophic events for a borrower.

But, some damn fool (my bet is that is started with Angelo R. Mozilo who is the former chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. During his reign, he was quite often the inventor of dirty trickster types home loan products that sounded great to a normal borrower, but often was an instrument of unavoidable failure.) decided that you could make a loan on a home that was set up to raise the monthly payment to borrow by huge amounts.  I personally put three young families in homes that my wife and I had built who had earlier been foreclosed in 2008 (that year will come back over and over). The Adjustable Rate Mortgage rate in their contracts was at first set very low as a teaser, but on a known date exactly two years later their interest rate, as well as their monthly payment, was contractually raised to rates that none of the families could possibly afford.

One of my buyer’s monthly payment raised from $1,100 to $1,950.  He was qualified at $1,100. The moment he signed the documents in his home loan.  He was going to be foreclosed on in about 3 years. All three young families bought their first homes in 2005.  The contractual interest rate tripped up in 2007. The struggled to make the ridiculous new payment while they tried unsuccessfully to refinance.  They struggled until their finances were sucked dry. Then cruelly some judge gave their home to some new unknown foreclosing party without the judge establishing if this new party had paid for their home loan, which is evidenced by a Promissory Note that was never proven to belong to the unknown imposter fictitious payee. (Those last four words are legal terms in the Uniform Commercial Code or UCC).

The above was detailed in the movie the movie “The Big Short”, but the movie was so accurate that it would be very hard for even a victim of the scheme would have trouble sorting out what was going on.  The movie was the story of how almost none of the big money loan brokers down to the local street broker understood what they were selling. But, they sold everything that came along looking like an exciting home loan, but they really didn’t understand that the defects in these loans would one day take their jobs and their homes.

The ARM that was tied to the 10 year treasury or Libor was just called an “Adjustable Rate Mortgage.  The loan which had its interest rate fixed and therefore the payment could never raise was just called a “Fixed Mortgage”.

But, the home loan which had an interest rate which tied the loan to an exponential rate increase on a date certain really doesn’t have a common and known name.  So, since it exacted a monstrous toll of loan failures and foreclosures it seems essential for it to have a name tied to its definition. How else can I and others like me teach and help people that have suffered grave Injuries in Fact (real an important legal terms).

So, I have been calling these time bomb loans CALENDAR ARMs.  If you ever talk to me remember my name for the loans that nearly broke the American and possibly the Global economy.
ONE MORE TIME:  “CALENDAR ARM”. A VERY DANGEROUS AND STUPID LOAN WHICH MADE THE BAD GUYS RICH AND THE GOOD GUYS POOR!