Alot of the people in these loans also have 2nds as part of their 80/20 deal, with the 2nds tied to prime which is also down. My neighbor is in one of these and he says his payments are down almost $700/month and his prop taxes are down over $100/month since his downward modification. Those are some big dollars every month.
I guess if a reset includes going from IO to principle as well then that may change things, but from everything I know many of the 3/1 and 5/1 ARMS that were common in SD were IO for 10 yrs. With rates at loan inception around 5.5%, the 12 month LIBOR would need to climb to 3.25% (assuming a 2.25% margin) just to get back to the initial payment. I think on these loans we are years away from seeing anyone in distress due to rates – may not see anyone in trouble until the IO period runs out and rates are up.
So there are a slew of people that are way upside down now but their payments are shrinking dramatically to the point of possibly being cheaper than renting a comp. So they are sitting and waiting for the end game with these loans while enjoying low payments. These loans are not even on deck yet, they are still in the dugout, hell they may even be still in the parking lot and not even in the stadium yet. They are just another piece of this fiasco that is going to have to play out eventually.
