ARM Resets Hit Peak
Well, it seemed like a good idea at the time. During the summers of 2005 and 2006, wannabe homeowners opted for adjustable-rate mortgages with smaller initial payments scheduled to reset two to three years out. Now those ARMs are resetting, and many are watching to see if higher monthly payments will add more stress to an already troubled housing market in the United States. The Washington Post’s Renae Merle wrote in the Chicago Tribune yesterday:
The number of homeowners facing an increase in their subprime adjustable-rate mortgage payments will peak this summer, testing the efforts of lenders and others to keep those people out of foreclosure and stabilize the housing market.
The timing reflects the height of subprime lending in the summers of 2005 and 2006, when many borrowers secured loans scheduled to adjust in two or three years. For many, an adjustment means their interest rate will go up 2 to 3 percentage points.
Photo by svilen001, stock.xchng
Mark Fleming, chief economist for research firm First American CoreLogic told Merle:
The next six months, the industry, all of the folks that are out there trying to solve this problem, they are going to be very busy. There are a lot of people facing their resets right now. A good share of them don’t have the refinance option.
Merle noted that more than 300,000 such loans will adjust this summer. She wrote:
Lenders, federal officials and housing counselors have worried that borrowers will not be able to afford the higher payments after the reset and will quickly fall into foreclosure. Declining home prices have made it impossible for many of these homeowners to refinance.
It will not be clear for months how many will lose their homes, Fleming said. “A lot of those are resetting now,” he said. “We may not see the impact in foreclosures until the middle of 2009.”
RealtyTrac, an online marketer of foreclosed properties, told CNN Money last week that during the first six months of 2008, 343,159 Americans lost their homes, up 136% from 145,696 recorded during the same period in 2007.
Sources:
“ARM resets to hit peak this summer”
Renae Merle
Chicago Tribune/Washington Post, July 13, 2008
“Six months, 343,000 lost homes”
Les Christie
CNN Money, July 10, 2008
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