Why are 30 year fixed mortgages being penalized with higher rates than ARMS?

Isnt low rate ARMS partially why we are in this Mortage Crisis to begin with, yet mortgage lenders are raising the rates on 30 year fixed and once again having low rates for ARMS. I have great credit (750+) i qualify for whatever i choose, but the federal government is bailing out customers, and these companies, however the companies are still continuing the practice that got us here!Why are 30 year fixed mortgages being penalized with higher rates than ARMS?
Fixed rates stay fixed. ARM's start out cheap and then go up. And keep going up. Not once, but always. At some point, they meet the rate that the Fixed is at, but then they keep going up. Overall, ARM's are much higher throughout the entire mortgage period than Fixed. Which is why people have found themselves in a jam.Why are 30 year fixed mortgages being penalized with higher rates than ARMS?
Don't confuse the ARM teaser rate with the amount it will adjust to later. The initial rates on ARMs are *always* lower than a fixed mortgage - that's how they get people interested.
Because they know that in the long run, the interest rates WILL go up on the adjustable mortgages, and they will make more money than on a fixed rate loan. And as long as they can make money and the feds don't outlaw ARMs, the lenders will issue them.
You have to look beyond the surface. Here's how it works:





Your friend gets a mortgage for 30 years at 5.75% for all 30 years. He's got a great deal. For the next 30 years, he'll be paying about $585 per month on a $100,000 loan.





You get an ARM at 5.25% for a term of 5/1. That means for 5 years you get the 5.25%. Same loan amount of $100,000, so your payment is about $552.





Then in month 60, your rate adjusts to meet the market trend. It can go down (yeah, right) but most likely it will go to 7.25%. Your payment goes to $558.





The guy with the 30 year loan still has his 5.75%, still paying $552.





In year 7, your rate can go up again to as much as 9.25%. Your balance will be about $91000 and your payment right around $700.





And the other guy is paying...





Now in year 8, you can probably only go one more per cent -- to 10.25%, so on a balance of about $89,750, your new payment should be about $765...





...but your friend is still paying 5.75%.





These are very approximate amounts, and I used the worst case scenario...that the loan will adjust to the max every time. I based this on a 5/1, with a 2% adjustment cap and a max of 5% over the life of the loan. This is a pretty common set up.





Some of the people who are going to get help were fooled by nefarious lenders or mortgage brokers, and were told lies about the loans they were getting. They may have read their loan docs and asked the right questions, and not been savvy enough to know they were being duped.





Many others were careless and/or lazy and didn't read the docs, didn't ask the questions...they saw the opportunity to get a 4% teaser loan, and didn't think beyond the 3rd or 5th year when the rate would adjust.





The market was really in a boom for a while, and they got a much bigger loan on their homes than was warranted. The market couldn't stay like that, and now the house that was valued at $400,000 two years ago is barely worth $280,000. They owe more than the value of the house, so when the big adjustment comes, they can't refinance. They can't refi, they can't make the payments...what happens now? Screwed.





I'm ambivalent about the bail out. I know two couples who've owned their homes for over 20 years, refinanced under those boom circumstances and now are about to lose their homes. One couple has a construction business, and hasn't had a job in months. They didn't over-borrow, but they can't make the payments. They're too far behind for me to help them, but they're nice people who tried to do the right thing over all these years and I'd like to see someone help them.