More See Walking Away As An Option

Click on the title to link. Although we are not suprised at all to read this, it is a very interesting article about the tough decision many are faced with. We found two things to be most profound:

1. "$300 billion worth of adjustable rate mortgages are expected to reset upward over the next 12 to 15 months, adding on average $1,000 to monthly mortgage payments on homes that already are worth 30 percent to 50 percent less than their original sale price."

2. "Roughly 23.2 percent of all single-family homeowners who have a mortgage are underwater on their property, according to third-quarter data from Zillow."

Staggering numbers when you think about it. As we have said many times before, we are far from being out of the woods on all of this.

Forecast Graph

Here is a good chart that shows the expected peaks in Option ARM recasts and payment shocks. Payment shock simply means the "shock" when people see their payment sky rocket after they have had this low payment for so long due to the ARM adjusting. And keep in mind this is only Option ARMs, which are a tremendous problem and reason for the mess we are in. But this does not include all the "normal" mortgage out there, like a 30 year fixed, which are also defaulting at alarming rates. In fact, we have been seeing and hearing several things where the default rates on fixed, A-paper loans has surpassed other "riskier" loans. This is not a good sign.

The Next Foreclosure Wave

Click on the title to link. It is funny because we were just talking with two of our closest friends about this at lunch. We are not near the end of the foreclosure wave, which is one of the reasons we contend the market is not even close to recovery. The peak of the recasting and coinciding payment shock has not even been reached yet. In other words, ARM's that have yet to adjust will not even peak until 2011. We may be underestimating the amount of those people who will already have walked away from their home, but this will still be a significant number that we think will further deepen the downturn in the real estate market.

Foreclosure Future

As Congress contemplates deeper mortgage bailouts, this was an interesting graph we found. It shows you that we have the worst still ahead as far as when adjustable rate loans will start adjusting. The peak of it will be in 2010.

Not Too Many Options For Those With "Pay Options"

Click on the title to link to this article. This article is talking about those with "pay option" arms. In our opinion, these along with the drop in housing values are the two biggest reasons for this mess we are in (on a very macro level). We preached to peope, "Stay away from these loans". The problem is lenders did not educate their clients as to the full story on these bad boys.

Here is a run down of a pay option arm. You have the option to make four different payments every month. Remember the advertiing of 1.5% rates and stuff. Well, those were option arms. One of your options was to make a payment with that rate, a 30 year fixed rate (which was always way higher than the going rate), an interest only 30 year rate, or a 15 year fixed rate. The big, big problem with these loans was paying at a 1.5% rate meant your mortgage was actually growing because your note was not based on that rate but a higher one. So you were not covering all the interest every month and, thus, your mortgage would grow. Now for markets like CA, NV and AZ where housing values were sky rocketing, nobody cared. Unfortunately, when the market came crashing down those people were screwed for two reasons:

1. They were now way upside down on the house since the value dropped and their mortgage had increased.
2. The rates on these ARMS started adjusting and, suddenly, people could not make those payments because they did not realize how high the payment would go. So they thought, "I'll just refinance." Oh now you won't because the guidelines changed so fast that most of these people could not get a loan any more because they needed stated income. So what would they do? Walk and get foreclosed on; they literally had no choice because they were stuck.

A screwed up mess has sense unfolded, and this is a huge reason for it. Read the article and shoot us any questions.

ARM Yourself Against Higher Payments

According to CoreLogic, nearly 300,000 subprime adjustable-rate mortgages (ARMs) were scheduled to reset throughout the summer months of 2008. For many borrowers, this meant higher monthly mortgage payments with a rate increase of 1 or 2 percentage points – or more in some cases – when their loan adjusts.
However, the peak month for the resetting of mortgages came this month (October) when, according to Credit Suisse, more than $50 billion in mortgages are scheduled to adjust to a new rate for the first time. If you or someone you know has an ARM, be proactive. Find out how much your payments will increase before your loan adjusts this fall.
Remember, while interest rate cuts from the Federal Reserve over the last year will definitely help some borrowers, many others could have trouble making increased monthly payments with food and fuel costs on the rise – especially if the Fed begins increasing its key interest
rates in order to fight inflation.
It's also important to note that credit guidelines have tightened dramatically in the last year or so, and it may be harder for you qualify for a fixed-rate product if we don't have enough time to address certain credit issues. So don't continue to wait if you have already. Give us a call today. We'll review your adjustable-rate mortgage with you and see what's best for your individual goals and needs.