It’s all about the index rate. If the indices had not been driven down toward historical lows, we would already be seeing a mass exodus of those in the 3/1 ARM products and we would be on the front edge of the second massive wave, those in the 5/1 products.
I don’t think the initial article misses the recast issue – I think he indicates that even at recast the payment spike will be not be devastating due to lower interest rates based on lower indices and a loan balance that has not grown massively.
As for what to expect with indices moving forward – my own yardstick is to look at the FFR as a benchmark as its easy to track and LIBOR typically follows fairly closely. My opinion is that 3% or lower is low. After the tech meltdown, the FFR was 3% or lower for 4 years. In this current debacle, the FFR has been 3% or lower for only 20 months. I think the table is set for low rates for longer than after the tech meltdown, so we have quite a bit of time to go in a low rate environment. FWIW.
