Open the Wall Street Journal and ponder North Atlantic Mortgage Corp.'s jumbo interest-only loans with a negative-amortization option (say the word and your loan balance gets bigger).
U.P.C.'s loss before interest, taxes, depreciation, amortization and stock-option costs could be smaller than 375 million euros ($342 million) instead of an earlier forecast of 400 million euros, the chief financial officer, Charles Bracken, said.
But none of that was enough to deflate ballooning losses on mortgage loans, nor defuse ticking time bombs like interest-only and pay-option amortization products that had reeled in bottom-grade borrowers.
More important, negative-amortization loans, prepayment-penalty mortgages, and option ARMs all made it easier for people with low incomes and poor credit to buy houses, and for people to buy bigger houses than they otherwise could have.
Excluding stock-option costs, depreciation and amortization, the company earned $1.99 per share.
Such loans, also known as "option A.R.M.'s" or "negative amortization loans," allow borrowers to make payments that don't even cover the interest on the loans, which causes the amount they owe to grow.
Golden West, the king of option mortgages that permit negative amortization (that is, your principal grows), timed its recent sale to Wachovia brilliantly.
An extension of the model, and arguably a more realistic description of business practice, may consider the effects on option premiums where Non-Performing Loans resume amortization after becoming thirty-days past due.
This option simply created a negative amortization ( balloon payment at the end).
Slide 7 also shows initial monthly payments for some alternative types of variable-rate mortgages, including interest-only ARMs, long-amortization ARMs, negative amortization ARMs (in which the initial payment does not even cover interest costs), and pay-option ARMs (which give the borrower considerable flexibility regarding the size of monthly payments in the early stages of the contract).
The ratios compare sales to receivables; sales to earnings; operating income to long-term debt; cost of goods sold to inventory; depreciation and amortization to capital expenditures; and cash flow from operations (less any tax savings from stock options) to earnings.
