80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …
somewhere between 5.625% and 6.25%.
Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.
