Next Wave Of Mortgage Resets On The Horizon

Posted In: ARMs, Foreclosures, Homeowners, Housing, Interest Rates, Mortgages, Subprime

The financial news media has been quiet lately when it comes to covering mortgage resets and their effect on the housing crisis. Too quiet. CNBC’s Ariel Nelson made some noise Thursday when she wrote:

Last year, everyone was worried that the resets on subprime loans would force borrowers into higher interest rates and payments. This element of the housing slide and credit crunch has subsided a bit…

However, the Option ARMs and Interest Only (IOs) loans scheduled to reset in the next few years will add more trouble. These loans represent about 15% of securitized loans and some have negatively amortized, increasing the payments and making refinancing more difficult. According to data from Barclay’s, about $300 billion in option ARMs and $820 billion in IO’s are set to recast. The results could be payment shocks over 80% for option ARMs and over 60% for IOs according to Barclay’s.

Option ARM Recast and Payment Shock Forecast
Source: CNBC

Earlier today, the Mortgage Bankers Association announced that a record 9.2% of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June.

Source:

“ARM Resets: Tsunami Ahead”
Ariel Nelson
CNBC, September 4, 2008

 

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