Mortgage Payment Reset

[Beach Rat]

I came across a paper from loan performance on mortgage payment resets I though people might find interesting. The numbers are national and so do not indicate a huge problem the author argues. I would be curious to see the numbers broken down in a more localized environment. Say California with the high levels of adjustable rate mortgages used over the last few years.

http://www.loanperformance.com/infocenter/whitepaper/FARES_resets_whitepaper_021406.pdf

[carlislematthew]

Thanks for posting that – very interesting reading.

They do have some local figures for CA, where in fact it seems that there are less people with negative (or little) equity than other areas in the country due to the large amount that bought pre-2003 and experienced massive increases.

The author argues and concludes that there is not a problem for the lending business or nationally economy as a whole because the amount of risky (teaser, or high rate) adjustable loans that also have minimal equity is fairly small as a percentage of the overall financing of residential housing.

He doesn’t extend the analysis to say “how many foreclosures is enough to drive down prices in an area?”. I imagine that he’ll leave that to other real-estate folks to analyze – he seems like a numbers guy and the analysis is on the amount of default loss that may be incurred, and not on the subsequent effect on the housing market.

I thoroughly recommend reading this. Lots of interesting facts and figures…

[powayseller]

Search the archives – this one has been discussed and dismissed before. Also check out previous discussion on housingbubblecasualty.com.

The paper is full of problems. For one, it does not recognize CLTV. Fannie Mae, as well as lenders, only have to report the 1st loan, not the 2nd.

On an 80/20 loan, Fannie Mae, as well as the author of this paper, count is as a 20% down.

The correct number to track is the Combined Loan to Value, which makes an 80/20 loan a 100% CLTV. But it is only a 80% LTV. Notice the paper didn’t even bother to inform you it is LTV they are using. They don’t want to point out the distinction. Idiots!

Can you see why this paper is worthless???

[Beach Rat]

My bad missed in the archives. CLTV’s should be used instead of the LTV in calculating equity. I did like the graphical representations that were made. Even if the data is off the graphs made it easy to see different scenarios that may arise given different price fluctuations. Guess we just have to pray for “good” data next time.

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