[quote=peterb]Unemployment rising to record levels, homes losing value and getting below mortgage amounts. And we’re only 1 year into this contraction. This is a deadly combination. Even if ARMs reset low now that the rates are quite low, it does little to mitigate job loss and being upside down on your mortgage.[/quote]
I think the point he made above is that ARM resets will not be the same catalyst that the subprime resets were. Being upside down might be. It depends on the monthly carrying costs versus dumping and renting. If it costs someone a few extra hundred $ per month to stay in their house with their adjusted rate, they are likely to stay put instead of walking away until there is some other catalyst for them to leave (change in job status, etc).
Most prime or alt-A loans from the 2004 – 2005 time frame are at the 12-month LIBOR plus 2.25%.
The 12-month LIBOR is currently around 2%.
So, the fully-indexed rate would now be 4.25 to 4.5%
These would reset today at or below their original rate (which was typically in the 5-6% range).
