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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (74519)	3/22/2007 11:33:15 AM
From: Les H	Respond to of 306849

'A' stands for 'Another risky mortgage' marketplacemoney.publicradio.org Higher Adjustable-Rate Mortgage Rates Raise Default Most of the headlines have focused on subprime loans, but the biggest risk of foreclosures stems from adjustable-rate mortgages, or ARMs, that started charging below-market teaser rates, Cagan concludes. Roughly half of those were made to subprime borrowers, but the rest are held by homeowners with better credit. Nearly 19 percent of ARM borrowers will see their monthly payments climb 51 percent or more as their loans reset -- a process that often begins within one to six months. Nearly half of those borrowers will see their payments at least double -- prompting Cagan to assume it's "inevitable" that such borrowers will default. To put it in dollar terms, borrowers who took out the typical teaser-rate loan will owe an additional $1,512 every month, the study says. On average, their payments will jump three times faster than loans initiated at prevailing market rates or subprime loaned that started at higher rates, the study says. Slumping home prices have left many borrowers in 2005 and 2006 in a precarious position, because many have built up little or no equity since they took out the loans. For example, 15 percent of the borrowers whose loans began to reset in 2006 have zero or negative equity. If home prices slip even 5 percent, the share of borrowers in that fix would vault to nearly 26 percent. "It pushes them deeper into the danger zone," Cagan said. remodeling.hw.net