It shows the dollar amount of resets for loans that existed as of sometime in 2007 (note that some will have or will be refinanced, sold or defaulted before the scheduled reset date).
Note that the preponderance of loan dollars experiencing re-sets in 2007-2008 are sub-prime mortgages. These are typically at higher rates and reset based on higher margins than any other loan. A significant chunk of these will either result in defaults, with the remainder being worked-out, refinanced or (perhaps) simply held. After 2008, the majority of ARM resets are spread across the following categories:
Agency ARM (e.g. Conforming ARMs)
Prime
Alt-A
The bulk of the remaining are option ARMs, which have the nasty negative amortization feature.
The Prime, agency and Alt-A’s will likely be resetting at or near their initial rate if interest rates remain where they are or fall further. Which is the point I made previously.
The Option ARMs, while they may reset at or near their original rates, may result in payment spikes due to accumulated principal (neg am).
I have often read from folks in this forum and elsewhere that the second wave of resets will be what causes a protracted decline into 2013 or beyond. I believe, however, that we should consider that the impact of the first wave (largely sub-prime) has been to cause a slow down and a subsequent decline in rates. This decline may have the effect of dampening the impact of the second wave of resets (2009-2011), resulting in reaching a market bottom sooner than one would be led to believe by taking a cursory look at the reset chart.
Does this mean I expect the pain to stop anytime soon. No, not really. But I would certainly take interest rates into consideration in my outlook with respect to loan resets.
