Thursday, March 02, 2006

Someone Recognizes a Risk Premium?



Who's right? Good question but as more and more people have opted away from the traditional 30 yr conforming loan the consumer advantage of the ARM appears to be eroding.

2 comments:

Soproudofyou said...

"Consumer advantage of the ARM"? Of course that is correct, but it sounds hilarious coming from a bubblehead. Better late than never, eh? What's next, learning to differentiate between debt and debt service?

Rob Dawg said...

Why would any reasonable bubblehead -not- recognize the value of an ARM? It is the same math the says the recent appeciation is unsustainable.

Then there's the difference twixt debt and debt service. This is a matter of opinion to some extent. Debt service on household debt has been very low relative to debt. That's been a good thing and if this debt service were fixed not a problem going forward. Therein lies the rub. The "A" in ARM is for adjustable. The usual reply is "oh, we'll just re-fi to a fixed if we get squeezed." Only works in a loose credit rising equity environment.