Sunday, September 17, 2006

An ARM Full

Karen DeCoster’s recent post, On ARMs, Bullish Know-Nothings, et al, critcized my posted thoughts on Karen’s labeling of ARMs as “evil.”

In her post, Karen notes that much of the ARM market could not exist without the propping up which the government affords the financial markets.  A fact which I do not disagree with.

Be that as it may, and regardless of Karen thinking my thoughts on ARMs, as merely risky financial tools, as being “poorly thought out and very misguided,” I think Karen’s own comments, in her post linked above, support my statement that Karen is erroneous in labeling ARMs as evil.

In my post, Pay Option ARM and Hammered, I stated that the issue, in regards to ARMs, is not that they are evil, but that they are marketed unethically.

...I will offer some insights on what I think is the actual issue with the sale of this loan product to individuals.  A lack of ethics within the mortgage industry, more specifically the subprime/non-conforming loan industry,...

Karen supports this statement in her post when she writes,

Historically, ARMs were financial vehicles created by banks only for their most wealthy and financially sound/responsible clientele.

Karen then reiterates this further into her piece when she writes,

...once a luxury financing alternative that private banks offered to wealthy individuals...

This is what I had to say in my post in regards to whom ARMs were being sold to.

The loan was being sold to individuals on fixed incomes, to individuals in real estate markets known to be stagnant or depreciating, and to individuals who could barely qualify for the minimum monthly payment due at the inception of the mortgage.  Individuals at the most risk for payment default were (are) being sold the riskiest home loan product on the market.

I stand by my words, which follow.

ARMs are not evil, they are simply financial tools.  The issue is the ethics of those pushing the this loan product to those individuals who are least capable of operating the tool.

Posted by John Venlet on 09/17 at 06:36 AM
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