[lbo-talk] frontiers of financial innovation

Doug Henwood dhenwood at panix.com
Thu Jan 20 13:40:53 PST 2005


Willy Greenfields wrote:


> >We're way off track here: Doug said that taking out
>>a negative amortization adjustable rate mortgage is
>>like going to Vegas (or worse!). He's just plumb
>>wrong. By a lot.
>
>
>I think we're on different pages here. You seem to be
>taking exception w/ Doug, believing that he takes
>negative-amortization mortgagors as speculators or
>dupes of a wicked finance industry. I'm inclined to
>agree with him, but I'm trying to get at something a
>bit broader.

Of course it's not like Vegas for everyone. Jordan's a sophisticated guy and knew what he was doing. Most people aren't, and a lot of people could get into serious trouble if rates rise, housing prices fall, or the job market weakens. It's a really bad idea, and regulators should be making critical noises.


>I really don't care whether these products benefit or
>harm individual mortgagors or lenders. The fact is
>that they're exploding: a recent trade journal said
>that the "percentage of non-agency short-reset ARMs -
>mainly negative-amortization products - increased in
>November to roughly 22% of total prime production from
>about 3% in April."

22%???!! My god, it's wrose than I thought. This is like a put/call ratio of 0.10 or something, a measure of extreme bullish complacency.

Doug



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