According to a report by First American Core Logic, approximately 10% of the nation’s adjustable rate mortgages (ARMs) are set to adjust in the next few years, with a peak number adjusting in mid- to late-2011. Nearly one fifth of these borrowers are already behind on their payments, pressure which will place more properties on the sales market as jobs will not have improved by 2011. While a third of these loans will most likely be gone before they adjust (due to foreclosure, refinancing or other modification), the remaining bulk of the loans will be subject to increases in mortgage payments, increases which will drive the owners to sell.
first tuesday take: With nominal mortgage rates currently at historic lows (but too high in “real” terms), those homeowners with ARMs may have a brief respite, but the peak of these loan reamortization adjustments will hit in 2011 right when California real estate prices will be making an attempt to form a bottom for this housing recession. Should the resetting of payments be unfavorable for the thousands of California borrowers with ARMs, there will be another round of foreclosures to send prices ever lower, and hopefully attract more buyers. As long as prices are moving, brokers and agents will make money.
By now, everyone is aware ARM loans are just a bad idea, especially with a nascent real estate recovery at hand. Once the dust of foreclosures, short sales and speculator resales has cleared and MLS marketing conditions start to stabilize, there is always the danger of history repeating itself as unregulated lenders chase profits, and prospective buyers again bite off more than they can chew. ARM loans are based on short-term consumer rates, not long-term real estate ownership rates, and must be made things of the past. It will take the effort of brokers and agents to avoid ARMs if we are to build an enduring real estate market.
Re: “A look ahead to the great resetting” from The Washington Post