Two-year teaser rates tossed

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This one is worth noting: Blown Mortgage reports that Option One has eliminated the so-called 2/28, the 2-year fixed subprime adjustable-rate loan, from its lending portfolio. Blown Mortgaage: ‘The 2/28 as it’s known in the industry was the staple of subprime refinance options during the recent run-up in housing.’

(2/28? Two years of a low, fixed rate ‘teaser’ payment, 28 years of much higher, adjustable rate payments. Because of the trouble this often causes for the borrower in year three, the 2/28 has been called an ‘exploding’ or ‘suicide’ loan.)

Blown Mortgage continues: ‘The elimination of this product from a former leader of the subprime world is a positive step to reducing the effects of exploding ARMs on borrowers who often leveraged themselves to the hilt borrowing on a short-term teaser rate.’

In explaining the decision to stop offering 2/28 products immediately, Option One cited two influences: tighter federal lending guidelines and, more urgently, a sudden decline in the value of 2/28 products. ‘The loss in value is significant enough that we made the decision that the best thing for us to do is to eliminate our 2/28 ARM product,’ Blown Mortgage quoted Option One as saying.

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