please help...

yaweh · Joined: 22 Mar 2005 Posts: 7

to all,

i have a question which i really need help on. first of all, i am a new loan officer....newly got into the mortgage business....

recently, i closed a loan for a client of mine. he liked the "pick a payment" program so that's what i got him. however, after the loan is closed, there are some questions arised from my client which i can't seem to understand or answer. my loan rep wasn't able to clearly explain the program to me either.

first of all, the loan was locked at 5.48%. the loan amount is 187,000. the minimum payment is 1.95%. here are some of my calculations.

at 5.48%, interest only payment is 853.97
at 5.48%, interest and principal payment (30 years) is 1059.42

however, at the MINIMUM PAYMENT (1.95%)....the lender determined the payment to be 686.52... and my rep said that this amount has no principal included. my calculations is 303 interest only....and 686.52 PI.

if anyone is reading this, let me know who the lender got 686.52 as the interests only amortized at 30 years. and what is the difference between the 686.52 amount...and the 303 amount...

thanks...

yaweh

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Yaweh,

First of all I'd like to post the disclaimer that I likely don't know what I'm talking about on this because I've never done a pay option arm. However this is what I remember from being told when I was looking at doing one.

The minimum payment is not necessarily the 1.95%. That is the starting rate, with an additional Margin on top of that, which determines what the actual minimum payment would be. Based off this conclusion i come to an approximate rate of 4.4%, which would have a margin of 2.45%. This would mean that the minimum payment would always be the 686.52, and could go up at a later time.

I'm not 100% on that, I'm going off of a memory of some Countrywide option arm course I had to sit in on, and as I said i never used one.

yaweh · Joined: 22 Mar 2005 Posts: 7

travis...

you know, that does make sense.....which would mean that the phrase
"you only have to pay the minimum percent of 1.95%" is not true then...

the confusing part for me....using a real estate calculator and using 1.95 as the interest, it does show 686.52 as the PI..and 303 as I only, but my loan rep is doing a bad job saying "because it is amortized over 30 years, the interest is not 303.....its 686 instead..."...and i just got lost from here.

by the way travis, can you explain a little on what the "margin" is??

yaweh

nikko3 · Joined: 20 Jan 2005 Posts: 246 Location: acton, ca

Yaweh,

if you take the rate of 1.95% and times it by 187,000 and divide by 12 then you get the $303 payment. But if you amortize the loan amount for 30 years at a rate of 1.95% then you get the $686 payment.

I have a mortgage calculator in excel that does this for you. Gimme your e-mail adress and I'll send it to you.

:)
Lisa

yaweh · Joined: 22 Mar 2005 Posts: 7

NIKKO..

THANK YOU THAN YOU THANK YOU....

WRITE ME AT yajsabsislig@hotmail.com......and email me that excel program that you have...

you also said "if you amortize over 30 year" (the same thing my rep said to me).....is this 686 amount only interest??

i also have a mortgage calculator...and if i plug in 1.95, 187k, and 30 year terms...it does show that 686 is PI, and 303 is interest only....

over 30 years, is 686 interests only? is the calculator wrong?

yaweh

capnmorgan5555 · Joined: 29 Jan 2005 Posts: 29

yaweh,

The option arm has payment options.

Option 1 is the minimum payment at 1.95% your $686 amount
Option 2 is to pay the interest only this rate is based on your index plus your margin and usually changes every month, which it sounds like would be the $853 (I don't have my calculator handy so I am going from your numbers)
Option 3 is to pay a 30 year fully amortizing payment the $1,069 amt
Option 4 is to pay a 15 year fully amortizing payment

If you do option 1 and option 2 is higher, then your client is accruing deferred interest or experiencing negative amortization, which means he/she is adding $169 a month to their current mortgage balance.

Not to be critical, but if you don't understand this type of loan you shouldn't be selling it. This loan is not for everyone and I certainly hope your client realized the possibility of negative amortization.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Well now I feel like a dork! Didn't even think that it would be an amortized amount. Makes sense though.

Ah well, we don't do these anyway just what I rememebred from way back when :)

yaweh · Joined: 22 Mar 2005 Posts: 7

to all...

thanks for all your replies...

as i understood...i thought that 686 includes principle and interests at 1.95%. at that time, i "knew" the program well.....(hahahahaahah)

but so far, no one has yet told me to "accept" 686 as the interest only,
especially when a mortgage calculator says "pi = 686"....and i = 303.

everyone keep on saying "its amortized" over 30 years, that's why the
interest is 686....but if anyone of you knows exactly how we get the other 383 (686-303), please let me know...

yaweh

capnmorgan5555 · Joined: 29 Jan 2005 Posts: 29

Option 1 is a fully amortized payment for your teaser rate of 1.95% there is no interest only on the 1.95% rate unless your index plus your margin equalled 1.95% which is doubtful because the margin is probably more than 1.95% and your index probably wouldn't go down to 0%.

Option 2 is where the interest only part comes in. That is your minimum payment if you want to avoid neg am.

Does that better explain it?

yaweh · Joined: 22 Mar 2005 Posts: 7

cap...

yes, i do understand how it works now.....let me summarize for you to make sure...

there is no such thing as 1.95 interest payment only (unless index plus margin = 1.95 for option #1)....is this correct? If this is correct, reps should do a better job of explaining it to loan officers (i now have to explain it to my client.....do you have any suggestion???)

also, what exactly does it mean when you say "its fully amortized for 30 years)??? for interest only payment at 5.48, the interest only payment is 853. is this also "fully amortized for 30 years too"?? or is this payment only amortized for 1 year?

yaweh

chow · Posted: Wed Mar 23, 2005 4:15 pm Post subject:

From an investor standpoint, those index and margin numbers will most likely never drop below the start rates. If you have a copy of the note and mortgage and arm disclosures, I bet lunch at Micky D's, there is a notation on that in the file. I would make a copy of that file and read the core doc's very carefully, and learn from them. (Then call the AE and have him get in there and train you on them!!!!

I used to have to FIX these issues with customers when we got closed loans in that were done by closing departments at broker and banking offices that did not understand them enough to close them.

And Nikko 3-I'll tak a copy of that nifty spreadsheet too! I have a newbie and he's loving some of the things I find to use a learning tools!

kathy@findingthemoney.com

capnmorgan5555 · Joined: 29 Jan 2005 Posts: 29

There is no I/O at the 1.95%, the payment on that is what "should be" a fully amortizing 30 year loan.

As far as the explanation- when I have made a mistake I admitted to the client, apologized for it and asked them what they would suggest I do to make it right with them. I have found that what they ask for is a lot less than I was prepared to offer.

I fully agree that AE's, LO's and Owner/Managers shouldn't be selling a program until it is fully understood by each level, anyone presenting these to the public should know all the pros and cons and IMHO should have helped the client set up a comprehensive financial plan surrounding this type of loan (with a licensed professional). These types of loans in the wrong hands just lead to serious problems for the client and eventually to all of us in this business through bad press and potential limited liquidity for our sources of funds.

Option 3 is a fully amortized payment based on the fully indexed rate + margin- an interest only payment isn't a 30 year amortized payment it is interest only so in theory if you only paid interest the loan would never pay off. So an interest only payment isn't really amortized.

Let me know if you have any other questions.

Good luck to you.

yaweh · Joined: 22 Mar 2005 Posts: 7

cap...

thanks bro...you certainly did clear up many questions.....i do have one
more question though....

"There is no I/O at the 1.95%, the payment on that is what "should be" a fully amortizing 30 year loan."

it seems like if the 1.95 is not amortized over 30 years, then the payment
would only be 303...correct???? however, since it is amortized at 30 years, the amount is 686....correct?? how can i explain this 686 amount in terms that people would understand? in other words, do i say "the amount is based on 1.95%, but it is amortized at 30 years..that's why its higher..."? this statment doenst' really tell me anything...do you see what i'm saying?

i'm trying to udnerstand why its 383 (686-303) more compare to an I/O amount of 303.....at first, i thought that the 383 includes principal and insurance, but this is not it.....

by the way, do you know the equation in getting the 686 amount? at first, i used a mortage calculator, but the calculator says 686 is PI...so i want to try it with an equation too...

yaweh

dschaff · Joined: 23 Mar 2005 Posts: 2

i didnt read the whole post only your laast question so this may have been covered.

303.80 would be an i/o payment at 1.95 which doesnet exist. the io payment is based on the fulley indexed rate(index plus margin). the minimum payment 1.95 amortized over 30yrs (686.52) is a neg- am payment. meaning if he pays this amount only they take the io pavment minus the neg-am payment and add it to his principle. This will make his balance go up. hope this helps.

yaweh · Joined: 22 Mar 2005 Posts: 7

to all....

thank you all for your comments....but once again, all i'm interested in now is on why my mortgage calculator says 686 is the PI payment, which is not true according to all of you.....

on every online mortgage calculator and every mortgage calculator i used, i plugged in 1.95%, 187000 loan amount, and 30y term...it says

1) interest only = 303
2) pi = 686

it even give me an amortization table with "interest = 303 and principal = 383" initially.............

this is why i kept on asking why in this case, 686 is only the interest amortized over 30 years, and no principal included.....and if this is only the interest amortized over 30 years....then how do we get the other remaining 383 (686-303).....

yaweh

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