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Is There a 'Moral Hazard' on Pay-Option ARMs?(Adjustable Rate Mortgage )
If you attended the recent Senate Banking Committee hearing on "alternative mortgage products" you might've come away thinking that the payment-option ARM is the worst loan ever created by the mortgage industry. You also might've walked away thinking that POAs are ticking time bombs, waiting to explode inside each servicer's portfolio.
And if you're a mortgage professional, by now, you're sick and tired of all the misreporting on POAs that have been occurring in the general media and some of the trade press. In short, the POA has been so demonized it's a wonder any consumer would even consider one anymore.
So let's ask the basic question. Why would any consumer in his/her right mind take out a POA, make the minimum payment each month, increasing their overall loan balance? The simple answer is that such a mortgagor is on a tight budget and is trying to spend as little cash as possible. It also could be that such a customer is a spend thrift, can't stick to a household budget (if they even have one), and every month when the mortgage and credit card bills arrive they swallow lightly, and make the lowest payment possible, because darn it, they'll cry tomorrow.
But keep in mind a few things. POAs have been around for quite some time. World Savings (recently bought by Wachovia) has been making the loan for two decades. World is managed by Herb and Marion Sandler, two tight-fisted and fiscally conservative managers who, when it comes to risk taking, make Warren Buffet look like Paris Hilton. World Savings has never had a problem with the loan.
One item revealed in the Senate hearing that received little news coverage (except from National Mortgage News) was the fact that POAs are not currently suffering high delinquencies, at least not any higher than the going rate. Then again, the use of POAs didn't take off until early 2005, just when they U.S. housing market was peaking.
According to figures compiled by the Alternative Products Quarter Data Report (an affiliate of this periodical), POAs accounted for about 9% of industrywide production in the second quarter, or $83 billion out of an $877 billion ...
- BoA, Wells, ChaseOn Hook for POAs.(News)
- Magazine article from: National Mortgage News September 14, 2009 700+ words
...Mortgage News, the POA business peaked in...the top funders of POAs were Countrywide Home...Chicago office said the POAs, like all of the...updated figure on its POA holdings (loans that...auctioning some of its POA portfolio in the secondary...happens, losses on POAs are all but ...
- IOs/POAs Spark Concern.
- Magazine article from: National Mortgage News Collins, Brian August 21, 2006 700+ words
...heightened awareness of IOs and POAs and concerns about the ability...despite negative publicity. POAs accounted for 12.3% of mortgage...mortgages, alt-A, IOs and POAs in the July survey. Senior loan...amortization, before approving an IO or POA. Lenders also must assume that...
- Avoiding POA Problems with the IRS.(power of attorney)
- Magazine article from: The Tax Adviser Ely, Mark H. October 1, 2000 700+ words
...representative. Tips to Speed Processing POA forms given to IRS personnel...entered by the CAF unit, the POA will not be in the computer system...Practitioners should fax their POAs directly to the CAF unit; a...time a representative files a POA that is entered in the CAF system...
- Bank Acquisitions Raise POA Stakes.(News)
- Magazine article from: Mortgage Servicing News November 2, 2009 700+ words
...might be on the hook for future POA losses and how did they get to...collected by this publication, the POA business peaked in 2006 with...years ago the top funders of POAs were Countrywide Home Loans...Tom Wind, publicly lambasted POAs at the peak of the product...
- Living: Fraught business of POAs, ETAs and cashflow.(News)
- Newspaper article from: Sunday Mercury (Birmingham, England) December 16, 2001 700+ words
...t want to leave it all until Sunday night, do you?'' he says when I protest. He starts off on Saturday morning with a POA (plan of action) and executes it with military precision, despite my best efforts at domestic sabotage. I hide the alarm...
- Wachovia May Take More POA Hits.
- Magazine article from: National Mortgage News Muolo, Paul September 8, 2008 700+ words
...lenders have stopped funding POAs altogether. In early...funded $344 million in POA loans, according to the...It ranked second among POA funders, according to...continuing to fund new POA mortgages - but without...interest-only choices. POAs were a staple product...
- IRS talks enforcement: annual liaison meeting tackles all, from Appeals to...
- Magazine article from: California CPA Spaniel, Bill January 1, 2005 700+ words
...before the CPA or other qualified individual signs and dates the form. It does matter, however, how the inclusive years for the POA are listed. It is best to indicate all years by number rather than note a time span. So, instead of writing 2004-2006...
- Some Use Power of Attorney for E-Closings: With a POA mortgage closing, the...
- Magazine article from: National Mortgage News Garritano, Anthony October 15, 2007 700+ words
...home equity or a refi POA makes sense because you...attorney to a stranger. POAs are best described as...digital signature. With POA it's still a paper out...just not the borrower. POAs are viable, it's just...the e-closing over the POA closing for control and...
Source: HighBeam Research, Is There a 'Moral Hazard' on Pay-Option ARMs?(Adjustable Rate...