Adjustable Rate Mortgages Won’t Be a Big Problem This Year
Subprime and even prime adjustable rate mortgages were one of the many triggers of the collapse of the housing market because, when the introductory rates
Jul 31, 2020284.5K Shares3.8M Views
Subprime and even prime adjustable rate mortgages were one of the many triggers of the collapse of the housing market because, when the introductory rates ended, lenders often significantly and suddenly raised rates and thus monthly payments for many borrowers. Economists have been predicting that a new raft of rate adjustments in 2010 — when people with 5/1 ARMS initiated in 2005 at nearly the apex of mortgage activity would experience their first rate adjustment— could send the yet-to-recover housing market into a tailspin. But new figures, first reported in The Wall Street Journal, shows that the Fed’s work to keep interest rates low, combined with the already-high rate of default among some borrowers with ARMs, mortgage modifications and traditional refinancing, may mean that the housing market will continue limping along with few fresh wounds.
“„The majority of option ARMs are set to recast over the next two years. But the volume of outstanding loans has fallen sharply because many borrowers, prior to facing higher payments, received modifications, refinanced or defaulted.
There are only slightly more than half the number of outstanding ARMs today as were in existence in March 2006, when 1.05 million such mortgages were on the market.
In addition, those ARMs in which any adjustment is tied to the Fed’s interest rate may adjust downward in 2010, as the interest rate is lower today than it was in 2005. Some people whose ARMs adjusted in 2008 or 2009 already experienced this effect, which caused their interest rates and monthly payments to decline.
Rhyley Carney
Reviewer
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