September 29, 2006 at 6:48 PM #7633powaysellerParticipant
This story from the Christian Science Monitor (no, not a religous topic, so read on…) is more conservative on the number of families facing foreclosure.
Earlier this year, an analysis by First American Real Estate Solutions in Santa Ana, Calif., estimated that $368 billion in adjustable-rate mortgages originated in 2004 and 2005 are at risk of default because of this pattern. Many more borrowers with traditional ARM loans also face the prospect of rising interest rates, but of a more manageable magnitude.
“This translates into … 1.8 million families that are at risk as a result of the possibility of default and another 500,000 that are likely to go into foreclosure,” Allen Fishbein of the Consumer Federation of America said last week at a Senate hearing on nontraditional mortgages.
And while buyers at all income levels have been tempted – option ARMs were originally targeted at the wealthy in the 1980s – experts say families with modest or low incomes may be most at risk.
“A significant percentage of people taking out interest-only mortgages and option ARMs have credit scores below the median and incomes at median or below,” Mr. Fishbein said in his testimony.
“It will take more than five years to get housing valuations back to where they ought to be,” Merrill Lynch economist Sheryl King writes in a recent report.
Experts on both the pessimistic side, such as Ms. King, and the optimistic side agree on one thing: The impact of the ARM adjustments will occur over several years.
That, along with what Dr. Brown says is a very healthy banking system, could mitigate any broader economic impact.
“It’s a time release,” says Christopher Cagan, who did the risk analysis at First American Real Estate Solutions. “It’s not a single impact like Pearl Harbor.” – CSMSeptember 30, 2006 at 1:47 AM #36879rankandfileParticipant
Brief, torrential rain events can cause flooding problems in the short term. However, I have heard that rainfall occurring over a much longer period can be even more problematic. It wasn’t just the shock of Great Depression that did all the damage. The prolonged period of poverty that occurred afterwards caused a lot of damage as well. The meteor that known to have killed off the dinosaurs actually didn’t. It was the dust and ash clouds that blocked out the sun that eventually extinguished them. The point is that many times the conditions after a shocking event can cause as much if not more damage than the event itself.
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