After I posted this post, my readers corrected me in that ING Direct is actually a very responsible lender and company. I apologize for overreacting to the sub-prime mortgage. In fact, after some research, I am recommending readers to sign up to their online bank accounts.
With so many news articles about subprime loan and people being suckered into low teaser rates that ultimately reset, one would think that there wouldn’t be many ads about mortgage products that shouldn’t be sold to the general public in the first place. Today however, I got an ad from ING Direct advertising their low Adjustable Rate Mortgage (ARM) rate!
I was quite disturbed by this ad because it was these same products that got the United States into the whole housing mess in the first place. Sure, ARM is a great choice for mortgage for a small minority of people. However, no where in the ad do I see that this type of mortgage might not be for everyone. All I see is:
During the initial 5-year fixed rate period, you can save more than $8,200 in interest compared to a 30-year fixed rate mortgage. (Interest savings is over the first five years for a $235,000 loan) Start saving today with an Orange Mortgage!
If you just read this statement without knowing much else about mortgages, you would think that you are saving so much money. I don’t see anything in the ad that says what the interest rate is after it resets in 5 years, nor do I see anywhere that advises people to seek advice from professionals first because this is not for everyone (not that these so called professionals really tell you much truth judged from what’s been happening the last few years).
To make this worst, the reason why I got this ad is because I once had an online savings account with them. Did I even ask for a mortgage product pushed on me? If I was really stressed out about my mortgage payment, I might just fall prey to this ad and apply for this type of mortgage. To make sure we don’t spend enough time to research this, the ad says:
Apply by February 19, 2008 to receive One Low Closing Cost of $895.
Great.
Way to go ING Direct.
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{ 53 comments… read them below or add one }
I don’t really see the ad as being quite as bad as you make it out to be. You can’t expect a company not to advertise.
I see your point, but it’s not that bad.
This is not anything like subprime. Adjustable rates have always been extremely well disclosed with annual as well as overall caps. Subprimes was about something far far worse – no doc loans, 100%+ financing, no caps, etc.
I got that ad, too, but didn’t have the same reaction.
ING’s Arkadi Kuhlman has talked a lot about how ARMs aren’t for everyone, but they can be appropriate for some consumers.
Fiscal: Maybe you will agree with me if you know some people who were tricked into getting a ARM product thinking they can always re-finance.
Unfortunately, not everyone was informed as they needed to be when they purchased their house since 2003.
Will: This is definitely not the same as subprime but it doesn’t mean people weren’t tricked into these products when it doesn’t make sense for them. Even prime borrowers are getting into trouble because their rate is adjusting and they cannot re-finance.
junger: Good for you that you’ve heard ING’s comment about ARMs. Unfortunately I did not get the same message from the ad and I actually talked to someone from ING and no where did they mention what you’ve just said.
I agree that it does seem kinda lame that ING would send out ads like this when things have been making a downward turn. It seems to me that it only serves to makes things even worse than they are now.
ING was the one major lender who opposed the 2005 bankruptcy “reform” that ended the ability of courts to modify home mortgage terms — but courts CAN modify the terms of a second home loan or boat financing. In other words, it was a bill to screw homeowners.
ING is one of the good guys. Being a lender they offer loans. Big deal.
Bob: Thanks.. I thought I was the only one who feel that way.
Peter: Good for you that you know so much about the mortgage industry and history.
I think I would’ve had a different reaction if I didn’t call ING direct and talked to the representative only to be sold the product without any of the disclosures that everyone is saying here.
I got the same ad and I also just have a savings account with them. I didn’t think it was appropriate but at least it reminded me to uncheck the box that allows them to send me promotional offers.
I’ve made this comment elsewhere as well. Greed + Stupidity in a Capitalistic Market Place = Financial Meltdown.
Greed on the part of banks, brokers, mortgage brokers, etc. Also on the part of people jumping into the home flipping business that had no knowledge of the risks they were taking.
Stupidity on the part of the people seeking the loans who didn’t do their homework.
The marketplace had few controls in place to stem either. But ask yourself, do you really want the gov’t involved in every decision you make and “protecting” you from “evil, money grubbing” banks and brokers.
For the money-takers, Gov’t intevention has already made the whole loan/title process daunting at best. You have to wade through a book of documents. Disclosures for this and that. No wonder, no one wants to read through all of it. But it is your responsibility to read through it, understand it, and make your decision.
For the money-makers, quit thinking about yourself and your big bonus. Take some time and ask yourself if the product you are pushing is good for the one you are pushing it to.
If more people would inject some reason, the US would soar.
I see it as a “you have to do your homework” kind of deal. It’s like when you lease a Mercedes – they advertise the payment. They don’t mention the $140 oil changes, absurd maintenance costs, and crazy high out-of-warranty repairs. It’s just not ING’s responsibility to do our homework for us.
i have an ING 5/1 ARM mortgage, it’s great. ING is great in general. and it’s true what they say about the $895 closing costs. unheard of elsewhere. i’m completely happy with them.
Lay off of ING. They are one of the “good guys” when it comes to res mortgages. Ur arguement of “protect the passive consumer” is more of the reason we are in this mess than the “Product” itself. ARM’s have always been, and still are, a bonafide product. There was just too much stupid capital in the markets and they needed stupid people to sell it to- the ARM was the smartest way to do this. Stop making excuses and arguements for these stupid people- you are only further perpetuating the culture of passive consumerism. “Wha Wha Wha the Lender took advantage of me- Oh and I made the biggest investment of my life without reading the contract”. You’re pathetic!
I have a 5/1 arm with ING and love it. I’m wondering if I can refinance with them to their lower rate though.
An initial fixed rate can save you money – here’s how
Most mortgages with an interest rate that can change over time, have a fixed rate for a specified initial period, usually between 1 and 10 years. After that fixed period ends, the rate can adjust. For example, if you see a mortgage that’s called a “5/1 adjustable rate mortgage”, the initial rate stays fixed for 5 years. The rate may adjust up or down every year after the 5th year.
The Fixed vs Adjustable Periods
Banks can’t just change the rate after the fixed rate period to whatever rate they like. The rate adjusts based on a financial index.
We want to make sure you know everything about the Orange Mortgage, so here is how we set our rates.
* The Orange Mortgage is tied to the 1-year London Interbank Offered Rate – more commonly known as LIBOR.
* A margin is then added to the index that must be specified upfront and remains constant for the life of the loan.
* As an example, for an Orange Mortgage that’s fixed for 5 years, if the 1-year LIBOR at the end of the 5th year is 4.50% and our margin is 1.50%, your new rate in year 6 would be 6.00%.
The rate can be higher, lower or the same depending on what the 1-year LIBOR is at the end of the fixed term. Every year after that, the Orange Mortgage adjusts automatically to the 1-year LIBOR plus the margin.
Can rates just go up and up and up……?
It might sound like rates can still change a lot once the initial fixed period ends, but there are usually both annual and lifetime maximums on how much the rate can change. With the Orange Mortgage, the rate can adjust – up or down – a maximum of 2% a year after the fixed term ends, and can only increase by 6% over the life of the loan. The important thing to remember is that your rate can go up, down or stay the same.
Here’s what disturbs me about ING:
https://home.ingdirect.com/products/products.asp?s=AdustableRateMortgage
“Chart based on $215,000 mortgage. Interest and principal amounts are from the first five years of the loan, based on interest rates for the 5/1 Orange Mortgage (4.75%) and the national average 30-year fixed rate mortgage with no points (6.60%) as of 6/11/2007. The current 5/1 Orange Mortgage rate is 5.250%, effective February 20, 2008.”
ING never offered 4.75% or anywhere near that (they were about 1% higher) on 6/11/07, yet use that as their basis for comparison.
ING really should update this for TODAY’S rates, or at least use what they offered on the date of comparison.
All that being said I locked in at 4.5% back in 8/2004 when fixed rates were running about 5.5%. I’ve been happy w/ING and am considering locking @ 5.25% for another 5 years. ING charges $500 to lock their current rate for another 5yrs.
Why lock in at 5.25 for another 5 years when you can lock in 5.75 for 30 or 5.5 for 15? (just asking)
Are you 100% sure you will move in 3 or 4 years? (military, dea, cia, whatever?)
Are you 100% sure the ARM rate in 5 years will be as low as the fixed rate is now? (BTW, not a gamble I’m willing to take)
Are you 100% sure your income is completely secure and if all else fells you can cover your ARM if you reset? (some are, if you are then rock on)
COME ON PEOPLE! THINK
BTW, I do think that ING is one of the good guys. They DO have caps on the interest rate change within a years time and they DO go off of the LIPOR average. ING is not the bad guy, but furthermore… if you got a bad ARM from a cut-rate-scam of a company then who’s fault is it???
Amen, Joe.
Had people seriously answered those questions before, we wouldn’t be in this mess.
When we looked at what loan to go with, the upside risk wasn’t worth the short-term gain.
The 5.75% for a 30 would require about $3,000 in closing costs, the 5.5% @ 15yr would be about $2,000 in closing costs. High fees in addition to the higher rate is what keeps me from pulling the trigger on a total refi. If I could get into a 15yr fixed @ 5.25 for under $1,000 I’d be all over it.
For people that intend to pay off a loan in 5 years, with the option of putting it off for up to 30 years, this option is perfect. This obviously isn’t for everyone, but it is for those that understand that if you make heavy sacrifices for 5 years to pay off the loan, you literally save hundreds of thousands of dollars over the next 25. I think ING is at risk as well (since foreclosures hurt banks as well as people) and they would be careful to approve just anyone for this type of loan.
Mike, I think you mean “careful to not approve…”. Of course, most banks were not careful the last few years and thus further compounding the problem.
Now, thankfully, banks appear to be taking more care and proberly taking risk into account. This has kept the mortgage rates from falling as the Fed has lowered rates. The Fed had hoped to help alleviate rate pressure, but have not been able to do so because of the proper taking account of risk.
ING now requires 20% equity and no longer does interest only or investment properties. They also bumped their rate up to 5.5%. Still cheaper than 6.5% on a 30yr fixed.
Let me tell you…
I went to Quicken loans first (they are HORRIBLE)
Then I tried Countrywide (pretty bad)
Then I tried Citibank (OK)
Then I tried ING (by far the best)
ING is honest.
They are looking to make a fair profit.. not ripping you off.
If all the mortgage companies behaved like ING there would be no recession.
It was greedy banks that gave to unqualified lenders that caused the whole “subprime” mess.
And ING is an honest bank…
I currently have a five percent 5/1 ING ARM, which will reset October 1, 2008. I don’t know if I should take their offer to pay $500 and go to a 5.25 percent loan for the next five years or wait and see what happens. The new rate is based on the weekly average yield on United States Treasure securities adjusted to a constant maturity of 1 year, as made available by the federal Reserve Board. The most recent Index figure available as of the date 45 days before each Change Date is called the “Current Index.” Then they will add 2 1/2 percent rounded to the nearest 1/8th of a percent. The rate will not be greater than 7 percent or less than 3 percent. It may go up to 11 percent during the length of the loan.
Overreacting to the solicitation from ING.
The subprime meltdown has more to do with the following factors than it does ARM loans.
1. Dishonest brokers and banks who deliberately mislead customers with bait and switch tactics.
2. Inexperienced customers who didn’t *thoroughly* scrutinize the loan documents they signed and didn’t understand what was going on.
3. Accounting fraud based on the incentive of high-dollar bonuses for short term gains.
Every story I read from someone trapped with a bad mortgage claims that they were mislead into signing loans with ridiculous terms.
In my experience with two previous mortgages, one of the oldest and largest lenders in the country attempted many tricks.
I did NOT let this (unnamed Manhattan bank) bank get away with:
1. Last minute paperwork swap in the branch office signing meeting while under pressure to close.
2. Opening a credit card in my name against my explicit refusal.
3. Adding over $7000 in servicing fees to the loan over and above their normal fees.
4. Not redacting the fees that had been verbally agreed on with the broker.
5. Terms which differed significantly between the verbal discussion with the broker and the paperwork.
6. Other deception and high pressure sales tactics.
I can only imagine what was done to people with bad credit by fly by night lenders who didn’t scrutinize every line and didn’t have the self confidence to stand up and say “NO!”.
Does anyone here really think that Bear Sterns actually lost 10B. I think they never had it in the first place and the executives raking in multi-million dollar bonuses deliberately built a house of cards.
No wonder the whole thing collapsed.
Completly off key, if there product was such a bad one, why are they the lowest foreclosure bank in the USA, why does their stock rise while all the others fall….its because for most people a realistic ARM is a great product…who here is will to pay 100 more a month, plus tons of closing costs, to secure a mortgage they will surely not use for more than 10yrs (at most) you are going to move, refinance, and if you don’t ING offers you rate renewal options….we are in the mess because of subprime lending (ING never did any) and borrowers taking more than they should…stated income….well if you falsely stated your income then lost your house..should you be allowed to blame someone…..just my thoughts….
ING is by far the best mortgage company I have dealt with. I have experience with 4 lenders, including ING, over 4 different mortgages, and I will never even pick up the phone to call another company in my life. For the original poster: you’re a knucklehead if that ad “disturbed” you. 5/1 and 7/1 fully documented ARMs are most certainly not the reason the real estate market is in it’s current state. If you don’t understand that, then you’re part of the problem. I just received my loan docs for a 7/1 ARM re-fi at 5.5% and they are easy to read (literally no small print – all text is big) and easy to understand. INGs closing costs are super low $950 vs $4500 for Countrywide (Countrywide holds my loan now, and they wouldn’t give me but a few hundred dollar discount on my closing costs – now they won’t get any closing costs or any interest on the loan either.) Plus, ING doesn’t impound taxes and insurance, so I can set up my own saving account (with ING, of course) and earn interest on that money and only pay it out as it is due…imagine that, being allowed to act like a responsible adult and make my own decisions that benefit me. Furthermore, I paid no points for this loan and at any time during or after my fixed period, I can re-lock (not re-fi, there’s a difference – a re-lock doesn’t reset the overall payback term of the loan, i.e. 30 yrs, it just resets the interest rate and fixed term, then adjusts the monthly payments accordingly) a new rate for 5 or 7 years for a flat fee of $750. Not to mention I was able to take cash out for some home improvement projects without adversely affecting my rate – try swinging that deal with anybody else. In short, ING is a fantastic company with amazing and friendly customer service and secure and convenient online management tools. If you disagree with that, then you don’t have any idea what you’re talking about. For anybody considering a 5 or 7 year ARM re-fi with a loan to value of 80% or less, I highly recommend ING – you’ll be happy you went with them.
I have tons of money in INGdirect because of the liquidity and high interest 3.4%… better than most CD’s. However, I am very concerned that FDIC insures only $100K. With indymac in trouble, WAMU, Wachovia, Citibank, etc, I was wondering if INGdirect invested in the subprime and if so, how much. Im trying to access the risk of ING possibly going down like a bunch of other big banks.
Nina- check with your account to see if it is FDIC insured. If you have over $100k in there just put the difference in another FDIC insured account at another bank (i’ve been told that is a good way to protect yourself from a bank failure). Besides, ING is thriving right now… check out their market cap in comparison to the other large bank/life co’s out there over the past 5 yrs… AIG in particular. ING continues to outperform the competition.
I have $700k cash in electric orange acct… Im retired 40 something year old Mom living off the interest of 3.4%/month. FDIC only insures $100k max. I can create a 2nd, 3rd joint accounts with my kids, then that leaves $400k more unsecured. ING’s main business is insurance. I hope ING doesnt make any business mistakes like buying out banks in trouble, for example.
Nina: I really suggest you to spread out your cash in different accounts. Even the safest place is not safe enough when it comes to your own money, especially if you need to retire with this money.
There are many other options to put your money and spreading it out would make sure your money is safe.
Well to put stuff in a more of a Macro Perspective for you. If ING, which is the 10th largest company in the world, were to fail more than likely there would be many other bank and Life Co failures as well and there would be few safe havens for anybody’s $ and I’m sure it would be extremely expensive. Now ING Direct is more than likely, I’m guessing cause I DO NOT REPRESENT THEM, a seperate subsidiary of the parent ING co. and therefore doesn’t neccessarily have the same financial strenght or balance sheet as the overall group. Plus ING is a Dutch company and it may not get the “To Big to Fail” FED bailout that other banks may enjoy. Bottom line- if bank runs and failures are your biggest risk, you’re pretty safe. If there is widespread bank failure everyone withouth a dollar stuffed mattress or bullion under their pillow will lose some money.
Nina,
Although I believe it would be best to split funds up just for piece of mind, I actually believe you can structure the accounts such that they are entirely insured at ING. Check out the FDIC Insurance Estimator.
I ran it with you having a single $100K account, you having a joint account of $300K with the children, and 3 POD accounts for $100K for each child. This insured $700,000. The reason is the single account is insured separately from the joint account, which is insured separately from the POD accounts.
I would run your own report and double-check with ING, but it looks like the above method could be used to insure all of the funds.
Again, though, I would suggest putting some of the funds at other banks. Especially, because most on-line savings accounts make it very easy to do so and there are similar rates out there.
@Juan,
I think people thought IndyMac would be too big to fail, but yet, the FDIC took over. At this point, I don’t think any institution, except for maybe Bank of America is too big.
Since, the internet makes it relatively easy to keep funds at different institutions, that is the way to go.
CDInterestRates,
Actually, what really scares me is the thought that I cant go to a brick and mortar bank and line up to get my money out… the thought of an online bank just shutting down its website and phones is frightening. What other online banks has a 3.4% return or better?
Nina,
Try HSBC. I think they are offering 3.5% and they are pretty big (internationally).
And FNBO Direct (First National Bank of Omaha’s internet operation).
Countrywide currently has a 3.55%.
The info was very helpful… my strategy is to open a few online accts and spread out my money.
Another idea to conservative investing in this volatile market is to buy a set of non-taxable high interest bearing bonds (@4.5%+) from places like fidelity and citibank for a 1% or so fee. Citibank guy was offering “no-load”, no fee.
Ive never done this before … I know that your money is tied up for several years depending on the set of bonds you choose but you can get the interest out during that time. Is anyone in this blog doing this? What is your experience? Is there a better place to buy a set of conservative, high interest bearing set of bonds?
I also know that these are not secured at all, but the strategy is to select a group of them to balance out any loses should any of the bonds go bankcrupt.
Nina,
As you can tell from my by-line, I’m a CD guy. There are Gov’t agency bonds, muni-bonds, Corp. bonds, etc. I’m guessing they were either quoting muni’s or Gov’t bonds. I actually did an investing guide on various bonds (warning!!! self-less plug). Safe Investment Guide. It does not cover muni’s. Here is a link to some info on muni’s, http://en.wikipedia.org/wiki/Municipal_bond
The bond terms can be as long as 30-years. So check the details carefully. Hope this is helpful.
Self-less plug link,
http://www.jumbocdinvestments.com/safeinvestments.htm
cd :O)
Hello ‘CD Interest Rates’,
Thanks for the articles.
How would you respond to criticism that you have to pay taxes on the CD income even if I am in a lower tax bracket and hit the maximum AMT, I still have to pay full income taxes on the CD earnings. I have tons of tax deductions from my rental houses but hit the maximum AMT and still have to pay the full income taxes on my CD earnings. So, a 4% 6 month cd is only earning 2%. Therefore, non-taxable munibonds yield higher earnings. Correct me if Im wrong.
Correction: a 4% 1 year cd is only yielding earnings minus huge income taxes.
First, everyone has a different tax situation, so Tax Advantaged investments help some more than others (apparently, they will help you quite a bit).
Second, You have to weigh the tax advantages against risk. Many people like bonds because of the perceived low risk, they can do more than $100K, and of course the tax benefits. However, “low-risk” doesn’t mean no-risk. Many people thought the CDOs, CMOs, etc. were AAA rated and that the risk was diversified enough. Those people were wrong.
Next, bonds are generally a long-term investment. They also are usually callable. This benefits the issuers. If you buy a bond at 4.5% and it lasts 10-years, will you be happy with that return. Or if rates drop (not likely at the moment, but rates do go up and down) and your bond is called, you will be faced with re-investing the funds at lower rates or longer maturities.
Finally, I recommend a balanced approach to investments and wouldn’t recommend ever putting all of your eggs in one basket.
I think bonds, CDs, stocks, etc. should be used to balance a portfolio. Most people recommend being more heavy in stocks when you are younger, because historically stocks out-perform fixed-income investments when you have a 20 to 30-year investment window. As people near and go into retirement, they generally move more funds into the fixed-income class to preserve principal.
And my disclaimer, these thoughts are opinion only and should not be considered professoinal investment advice. And I’m sure there are many that will agree. :O)
CD Interest Rates, I went to your website above and found 7% interest on 1 year CD at Patelo Bank in SF. Wow, I’ll check them out! Thanks!
“CD Interest Rates”, what do you think about investing in a “foreign bank” where you would not be taxed on your earned interest? http://www.mlnbank.com/EN/about/faq.htm Have you heard of these guys? Their 1 year cd is over 5%, nontaxable.
Other sites have researched that particular bank and no one I know of has put funds there. Here is a link to review some info and comments on them:
http://bankdeals.blogspot.com/2005/10/research-into-millennium-bank-and-775.html
Our niche is safe, plain FDIC insured CDs.
To whom it may concern:
Please advise me how I can find out how ING -usa makes ITS investments…I own about $30,000 in a retirement annuity, income comes regularly each month; am retired, age 85; interested in stability and the methods of investment (mortgages, treasury notes, foreign banks, etc.) utilized by ING for its annuity business.
Thank you. (any web sites or other sources)
John: It depends on which annuity you have with them. Give me more details and I may be able to find out for you.
John P. If you’re investing $30k with any single annuity or company you get the right to demand some pretty solid info on where ur $ is going.
Considering your investment timeframe I’d be looking pretty strongly at some gold right now too. You don’t know what the Government is going to put in place concerning the banks, wall st, and mortgages. One thing is certain however, our currency will soon be further de-based as trillions upon trillions of new dollars are added to the money supply this year.
Hi all. Be careful of the sharky waters out there, and don’t be fooled by a teaser rate. Also, remember that since the prime lending rate is at almost 0% (.25%), any ARM is likely to increase, so it’s probably better to get a fixed rate mortgage now. Also, be aware that once you’re pre-approved, ING will charge you $350.00 if you back out later. This means that you may be locked into the loan before you get your loan package and understand all the details. My advice is to never initiate any contract under these conditions. Refinancing can be a complicated and stressful process, so it is best to educate yourself before hand, and do not give your credit card number away to acquire a loan or lock in a special rate.