Our Next Problem, More Mortgage Resets?
Recently I was reading some articles regarding ARM resets, spikes in foreclosures and how many foreclosures are actually out there which made me think about something I had read about almost a year ago that not many agents or home owners in general are either aware of or just not paying attention to. Here is a recap of the articles.
So how many foreclosures are actually out there? It appears that nobody really knows but estimates seem to be between 500,000 – 1 million throughout the nation.
One reason why homeowners foreclose on their homes is because of ARM resets. When an adjustable rate mortgage term expires or resets, homeowners can find themselves paying a lot more money monthly than expected. This could place them out of their budget and into a hardship situation which can lead to not being able to fulfill their mortgage obligations moving them to a loan modification, short sale, foreclosure and more inventory overall.
Lucky for homeowner with these types of loans, ARMs have not risen so far because current overall rates have been low. The problem is that the ARMs are tied into the FED rate and when the FED decides to raise the rate, ARMs will go up too.
This brings me to the article I read over a year ago. While we are still in our current crisis trying to inch our way out, we have a new set of ARM resets that will hit us this year which seems to be greater than our sub-prime issue of late, see the graph below.
IMF Resets
Are we really at the bottom or will it get worse?
Source: The Wall Street Journal, James R. Hagerty (03/19/2010)
Source: Los Angeles Times, E. Scott Reckard (03/20/2010)
Source:http://www.calculatedriskblog.com/2007/10/imf-mortgage-reset-chart.html
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