No. of Recommendations: 4
As to ARMs: in 1988, we bought a house in El Segundo with an ARM entry rate of 9.25%. It's the only way we could have gotten into the house. A couple of years later, the So Cal market went through another of its bust cycles. We were able to keep the house, at one time paying $1,000/mo in principal due to the way the loan was structured. I'll also admit to paying a number of months with option 1: negative amortization. When we bought the house, I was counting on a bout of inflation to ease the payments; never happened. Still, we managed to keep the house. Many years later when things turned south for us (jobs, health) the house held up its end of the bargain and gave us back all those payments we sweated through. It could just as well have been a tragic ending. I'd rather be lucky than good. :)

Getting an ARM instead of a fixed mortgage when rates are at 9.25% is not the issue. Greenie was encourgaing ARMs when mortgage rates were low. ARMs, even one's without teaser rates, were almost guaranteed to go up and the assumption that people could use the low rate for a while then remortgage and the total would be to their benefit was nonsense, ignoring the clauses that prevented refinancing and paying points in a timely fashion.

I don't think Greenspan is inherently a greedy bad guy. I think he plays around with economic models, likes complex markets, is insufficiently concerned about dishonesty, and really needs to get out of his ivory tower and talk to real people.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.