Aleablog cites the Fed:
http://www.aleablog.com/?p=329
Prime mortgages are doing fine; fixed-rate subprime mortgages are doing fine. ARMS with rate resets are not. Many 2/28 and 3/27 ARMs, that started with low teaser rates, have prepayment penalties, meaning borrowers can't get themselves out of trouble by refinancing into a FRM. Prepayment penalities are, in principle, fine--they allow borrowers to get mortgages with lower coupon rates. But in current practice, they may be a leading source of a lot of problems in the next few years...
The prepayment penalty is what brings em back to get refleeced. Tactic of the con-man: Sell them something defective, but make sure they come back to you to help them with their little problem. If loyalty to that trusted, helpful loan officer doesn't work, the $30k prepay will every time. Capiche?
ReplyDeleteOther Variant: Owner of retail glass store hires youngster to go out and shoot windows up and down the main streets of town with a BB Gun. They now have a problem which the store owner will gladly help them with.