The mortgage mess: a fresh example
The whole point of an adjustable-rate mortgage is to start off with a lower interest rate than a fixed loan. But it's a topsy-turvy world in the mortgage industry these days.
Bankrate.com's weekly survey of large lenders, released today, found average rates for conforming 30-year fixed mortgages at 5.95 percent, while ARM rates were above 6 percent. (The 1-year adjustable loan had a rate of 6.25 percent.)
Here's what Bankrate.com says about it:
It is unusual to see fixed mortgage rates lower than the rates offered to borrowers taking adjustable rate mortgages. But that is exactly the situation we are currently in, with rates on adjustable mortgages having been pushed higher in recent weeks due to a secondary market for adjustable rate mortgage-backed securities that is in disarray and being plagued by more sellers than buyers. Adjustable rate mortgages have higher instances of delinquency than fixed rate loans, and investors are exacting a price for that by commanding higher returns. This means higher rates for borrowers. Lenders not dependent upon the secondary markets are in a position to offer better terms, underscoring the need for consumers to shop around.
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Comments
Adjustable rates were never meant to be honored. The properties bought with such mortgages were meant to be sold before the high rates catch in. Nobody who was borrowing at such terms ever meant these would come to payment, as people seemed to believe that houses would be sold at 200% almost instantly.
Posted by: John Williams | March 28, 2008 9:36 AM