When option ARMs adjust
Fitch Ratings, in a research report out this week, has a sobering prediction about option ARMs, those adjustable-rate mortgages that allow borrowers to -- for a time -- make monthly payments so low that the total loan amount grows rather than shrinks. Watch out, Fitch says, when the loan terms "recast" to require borrowers to pay the normal amount:
Of the $200 billion of option ARMs outstanding, Fitch Ratings expects roughly $29 billion to recast by the end of 2009 and an additional $67 billion to recast in 2010. The potential average payment increase on this recasting population is 63%, representing on average an additional $1,053 due each month on top of the current average payment of $1,672. Data suggest that these large payment increases could cause delinquencies to more than double after recast.
Fitch, quoting LoanPerformance data, says option ARMs accounted for at least 40 percent of all "nonsubprime," non-Fannie and Freddie securitizations of adjustable-rate loans in both 2006 and 2007.
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Comments
Is there any way to find out the extent of option ARMs outstanding in Baltimore and when they will recast?
Posted by: MMC | September 3, 2008 9:38 AM
I've checked around a bit and haven't seen it, which means it would take a call or two to get it from a company that tracks such data. I do plan to do that when I get a moment.
Posted by: Jamie Smith Hopkins | September 3, 2008 10:14 AM
Do I read that correctly payments will go up from an average of $1672 to $2725? That is hard to believe, who would take such a loan? Who would make such a loan? Incredible foolish greed on both sides.
Posted by: Ned Carey | September 3, 2008 10:33 PM
A lot of inventory right now are houses sold between 2005-2007. That looks a lot like ARMs reset is coming.
Posted by: Semiconscious | September 6, 2008 10:51 AM