[quote=briansd1]Many teaser rate loans adjust up automatically, regardless of interest rates.
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Most loans have a teaser (start) rate and a fully indexed rate. If the start rate is below the fully indexed rate when the index is near zero, then yes these would adjust upward, regardless of rates.
However, the vast majority 5-year Prime and alt-A ARMs originating 5 years ago (and resetting currently) had start rates in the mid 5% range and 1-year or 6-momth adjustable rates that are set by the index + 2 to 3%. (less than 4% reset rates currently).
Although I think 80% of option ARMs (as opposed to prime and alt-A) are toast in the long run , that category, too contains many cases of reset rates falling to the point where they are no longer neg-am (in the short run).
[quote=briansd1]
Also refinance is not possible with bad credit and/or no equity. [/quote]
I agree. No refi if underwater or bad credit. However, until rates go up, these resets are not the trigger many expected to be pulled during 2009-2010. Alt-A and Prime adjustable loans are no less affordable to these owners than they were 5 years ago (well, at least the 70% of them that are still fully employed).
It’s all about wherewithal of the owners. ARMs that reset at or below original rates will allow many of these owners to maintain monthly payments.
The can gets kicked down the road.
