Posted: January 17th, 2010 | Author: Joe | Filed under: Debt, Economy, Real Estate | Tags: Adjustable Rate Mortgages, ARMs, Economy, Mortgage Rates, Mortgages, news, Real Estate | 1 Comment »
It seems like only yesterday that we were hearing about Option ARM Mortgage rates resetting, and that holders of those loans were unable to refinance because their house was worth less than the mortgage…. Oh, wait… it was yesterday. 
Well, even so, things appear to be confusing in the housing market and mortgage industry still.
According to a recent Reuters article, the rise in mortgage applications the 1st week of this year is a reflection on the demand for refinancing loans. Demand for mortgages for new purchases only rose marginally.
According to the Mortgage Bankers Association, the index of mortgage applications (both purchase and refinance mortgages) was up 14.3%, though the index was less than half of what it was a year ago. And the 4-week moving average of mortgage applications was down 6.4%.
The article quotes Bob Walters, chief economist at Quicken Loans as stating:
“What makes the (applications) increase interesting is that nothing exceptional occurred to prompt people to return to the market,”
But I’m wondering if it isn’t the threat of those option and interest only ARMs resetting staring people in the face. But, I’m only a blogger, what do I know?
Another factor that ties in with the ARM reset is the anticipated rise in mortgage rates when the Federal Reserve stops buying mortgage-related securities at the end of March. Part of the purpose of this program was to bring rates down and keep them down to allow the market to at least stabilize, if not start to see some growth.
Things look to stay rough for the time being though. The Mortgage Bankers Association forecasts that mortgage originations will drop a further 40% in 2010, to the lowest level in a decade. And the Yale University economist Robert Shiller has said that he expects housing prices in the U.S. to continue falling in the next few months.
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Posted: January 16th, 2010 | Author: Joe | Filed under: Debt | Tags: Adjustable Rate Mortgages, ARMs, Economy, Mortgage Rates, Mortgages, news | 1 Comment »
A recent article from CNBC, More Homeowners Struggling As Option ARMs Reset Higher warns about thousands more homeowners are about to be squeezed out of their homes as option ARM mortgages reset to new, higher levels.
It’s been an often talked about danger on the horizon, but it appears that the horizon is now here:
“It’s going to kill off housing,” warns Patrick Pulatie, CEO of Loan Fraud Investigations, a predatory lending audit firm. “We have pretty close to 500,000 option ARM payments going higher in California over the next couple of years. The impact of the higher payments will be devastating for homeowners who are having trouble now making ends meet.”
Option ARM mortgages have actually been around since 1981 and may be a good idea for people who have fluctuating income. The problem came about in the last decade when people began to feel entitled to a new home, and banks were willing to lend them more money than was reasonable, often without proof that the borrower would be able to pay off the loan.
Well, now all those people who bought way too much house and who have been paying in the low hundreds per month for their interest only mortgage are about to bit hit with a hefty dose of reality when those rates reset and they suddenly have to make up for all that principle they didn’t pay down.
Some 88 percent of Option ARMs originated between 2004 and 2007 are going to adjust higher between now and 2012. Those option ARM borrowers could see their housing bills go up as much as 63 percent, according to Fitch ratings.
This is on the heels of near record bankruptcy filings for 2009. This next wave of bankruptcies and foreclosures is expected to increase the amount of houses for sale, thus prolonging the buyer’s market and keeping a lid on any growth in home values for the next few years at least.
And that’s all if the Federal Reserve leaves interest rates where they are (near zero). If the fed raises interest rates to fight future inflation, then the impact on these ARMs could be even worse, further hindering any housing recovery.
Ordinarily, the people with resetting ARMs would just refinance to a fixed rate mortgage, but that isn’t possible in many cases, because the houses are worth less today than they when the mortgage was signed.
What a mess!
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