Tuesday, September 25, 2007

ARM Resets are Almost Over

The excerpts below from an article in the WSJ states the number of subprime ARM resets is coming to a close within by year-end. At least this part of pain in the housing market is ending, but there is still plenty to go. For example, some percentage of the resets will turn into foreclosures within a year. Furthermore, the resets are going to increase the inventory of unsold homes, which already stands at 10 months (according to the NAR), higher over the next 12 months.

. . . . . one dismal milestone may soon move into the housing market's rearview mirror, potentially giving rise to hopes for a rebound soon. Homeowners owing $31.8 billion in subprime adjustable-rate mortgages began paying higher interest rates this month, according to Moody's Economy.com.

That is the highest amount of subprime ARMs due to reset over a one-month period in this housing cycle. By December, resetting subprime ARMs are forecast to drop to $25.2 billion. By the end of 2008, they will have fallen to $3.6 billion, because lenders have largely stopped making such loans to borrowers with spotty credit histories.

The tsunami of interest-rate resets has been a big factor in the jump in defaults roiling credit markets this year. In August, foreclosure filings rose 36% from the previous month and were up 115% from last year, according to RealtyTrac. As ARM resets reach a peak, more homeowners will have trouble meeting payments.

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