Adjustable rate tax payer bond
Politicians have been quick to point the finger of distain at the lowly adjustable rate mortgage. How could mortgage brokers and lenders be so callused and greedy as to put borrowers into this financial calamity?
Borrowers were offered an initial low teaser interest rate allowing them to qualify for a home loan. Later the low interest rate would expire and ratchet up, increasing interest payments by hundreds of dollars a month. Adjustable loans were an oncoming train wreck for borrowers. Between 2005 and 2006 one-third of all mortgage loans were adjustable rate loans.
Hillary Clinton has proposed freezing the interest rates on all adjustable mortgages for five years. Many lenders have stopped offering adjustable rate mortgages and 80 different state, federal, and private agencies have been formed over the last year to assist borrowers who have these toxic loans.
But wait a minute. Our elected and appointed county officials also favored the adjustable interest rates over fixed rates and is now costing taxpayer hundreds of thousands of dollars in increased interest payment. Monday, the Sac Bee published a story in their Business Section about a monthly $500,000 increase in a single bond fund. The increase was the result of the interest rate jumping from 6.5 percent to 8.5 percent on a $346 million Sacramento County obligation bond.
The bond is (or was) a popular class of variable rate bonds (another nomenclature for adjustable rate) called auction-rate securities. The interest rate hike has resulted in the county’s monthly interest obligation to climb from $1.77 million to $2.29 million. Where is the outrage? When does the investigation begin? How could our smart elected officials and astute financial managers be so naïve as to finance long-term county obligations with adjustable rate securities? And how many other county bonds were financed with adjustable rate securities? Sacramento’s debt officer, Chris Marx, said of the $500,000 monthly increase in payment “it is within budget parameters.”
Borrowers were offered an initial low teaser interest rate allowing them to qualify for a home loan. Later the low interest rate would expire and ratchet up, increasing interest payments by hundreds of dollars a month. Adjustable loans were an oncoming train wreck for borrowers. Between 2005 and 2006 one-third of all mortgage loans were adjustable rate loans.
Hillary Clinton has proposed freezing the interest rates on all adjustable mortgages for five years. Many lenders have stopped offering adjustable rate mortgages and 80 different state, federal, and private agencies have been formed over the last year to assist borrowers who have these toxic loans.
But wait a minute. Our elected and appointed county officials also favored the adjustable interest rates over fixed rates and is now costing taxpayer hundreds of thousands of dollars in increased interest payment. Monday, the Sac Bee published a story in their Business Section about a monthly $500,000 increase in a single bond fund. The increase was the result of the interest rate jumping from 6.5 percent to 8.5 percent on a $346 million Sacramento County obligation bond.
The bond is (or was) a popular class of variable rate bonds (another nomenclature for adjustable rate) called auction-rate securities. The interest rate hike has resulted in the county’s monthly interest obligation to climb from $1.77 million to $2.29 million. Where is the outrage? When does the investigation begin? How could our smart elected officials and astute financial managers be so naïve as to finance long-term county obligations with adjustable rate securities? And how many other county bonds were financed with adjustable rate securities? Sacramento’s debt officer, Chris Marx, said of the $500,000 monthly increase in payment “it is within budget parameters.”
posted by Ken Calhoon at 7:17 AM
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