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Old 06-06-2009, 08:31 PM   #3
zippyjuan
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Join Date: Oct 2002
Location: Sunny San Diego
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The rate adjustment time of course depends on the terms of the loan- some had five year fixed before adjusting- and how much can depend on what index they are tied to (there are three main ones- the LIBOR index (which is the overnight rate in London), the 11th District Cost of Funds (inter bank lending rates) and the prime rate. The majority of the subprime loans have already adjusted by now but the more dangerous types of loans (so called Liars Loans or Alt A loans) are now starting to roll over. Some of these had "pick a payment" clause where you could decide to pay no interest, interest only, or interest plus principal. Unless you did principal plus interest, what you owed did not go down and in the case of no interest could have even gone up. Then when the loan adjusts, you are amortized not at 30 years but at 25 (or 30 minus whatever the grace period was) so while the indexes for adjustable loans are down, the balance and amortization periods on these loans will cause the payments to be higher.


Historical chart of the indexes:

http://www.moneycafe.com/library/compare.htm

As for comparisons to the Great Depression, the responces have not been the same. In the 1930's, the money supply was contracted and credit tightened while today money has been added into the system. It will not be the same as the Great Depression. There are countless different factors today vs then. Some people keep trying to link the two events (and they do have some similarities but also large differences) but they are not the same.
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