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| A new 5/6 Option ARM product being offered by a New York-based jumbo lender offers interest only for up to 10 years and then becomes a fully amortizing 30-year loan when the interest-only period ends or negative amortization occurs.
“So the loan can go on for 40 years,” said John Lera, head of secondary marketing at Tarrytown, N.Y.-based Luxmac. Borrowers can pay the initial rate, which is tied to the six-month LIBOR — usually 2.25 percentage points above it, or for the first five years, a rate that is 1.75 or 3.0 percentage points below the note rate, he explained. During years six through 10, borrowers must pay at least the full note rate. First loans on owner-occupied one to four-unit properties and on second homes can be up to $2 million and on investment properties of one to four units up to $1 million. LTVs can be as high as 100% or as high as 80% for cash-out loans, he said. And FICO scores can be as low as 620 on owner-occupied properties and 660 for investment properties. A 15-year amortization also is available. The product has yet to become very popular, Lera said, noting, “A lot of people are used to the standard Option ARM and the standard 5/6 Option ARM and this falls somewhere in between.” Extremely popular, he said, is Luxmac’s new Alt A “Home Run Series,” which offers funding of up to $2.0 million and LTVs up to 95%, with unlimited cashouts up to 80% LTV and FICOs as low as 620 for owner-occupied and second homes. For investment properties LTVs can be as high as 90%, loan amounts as high as $2 million and FICOs as low as 620. Documentation can range anywhere from no doc to full doc. And the loans are available as 2/6, 3/6, 5/6, 7/6, 10/6 15-year fixed and 30-year fixed. This wide range of choices have helped make them popular, he pointed out. “These loans also are especially popular in the secondary market,” he added. Also popular, but somewhat less, is its “Grand Slam” loan series, which provides loans up to 100% LTV and up to $1 million, with no mortgage insurance required, and FICOs as low as 620 for owner-occupied one- and two-unit primary homes and second homes. For investment properties of one to four units loans can also be as high as $1 million, LTVs as high as 100% but FICOs no lower than 660. As for yield-spread premiums on its Option ARMs and other mortgage products, Lera said, “We usually work out something.” They can go up to 1.25 percentage points but usually fall into the one-half to one percent range, he noted. For all of its mortgage products, ARMs remain more popular than fixed-rate loans. “The rate is a little bit lower on ARMs and when a loan is for $1 million or $2 million that’s a big saving,” Lera commented. “And, besides, many will eventually refinance.” |
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