“…a large portion of the sub-prime loans are two-year adjustables, says Berson, the Fannie Mae chief economist.”

$2.5 trillion in adjustable loans is coming due over the next 2 years, according to Paul Kasriel, chief economist at Chicago-based Northern Trust. I think nobody really knows how much will come due. How many of the original borrowers refinanced, so that not all 3yr ARMs made in 2004 will come due in 2007.

“Berson offered a typical example of what the industry calls a “2-28,” an ARM in which the interest rate is fixed for the first two years and then adjusts regularly for the next 28 to whatever index the loan calls for. The average yearly cap on this loan is 2.3 percentage points per year.

Roughly speaking, a consumer’s monthly bill could rise from $330 to as much as $1,425 to $1,755.

Fannie Mae expects sub-prime loans to be reset en masse this year with that trend continuing into 2007.

But over at the Mortgage Bankers Association, senior economist Michael Fratantoni is more interested in the five-year adjustables that were issued during the refi craze of 2002-03. That’s a large crop that will sprout in 2007.

“The estimate is that in 2007, more than a trillion dollars worth of hybrids are going to hit their first reset date,” he said.

That one chunk of hybrid loans represents 12 percent of the $8.8 trillion in single-family home loans outstanding nationwide.” – Mish’s Site, from the HeraldTribune

We are reminded in the article that cheap and easy credit is not a given. People think they can always refinance, but when credit cycles contract, that is not the case.