Mortgage Resets

[(former)FormerSanDiegan]

Various mortgage reset charts are often used in the blogosphere with terms like ticking time bomb. As I have mentioned here in the past, it is possible and likely that large segments of the ARM resets occurring between now and 2010 for will actually reset below their initial rates.

One needs to examine the impact of rate resets with more than a casual assumption that resetting mortgages will result in added foreclosures.

Finally, a clearly explained reasonable assessment of mortgage resets without all the hype.
http://globaleconomicanalysis.blogspot.com/2008/04/closer-look-at-arms-reset-problem.html

[(former)FormerSanDiegan]

Bottom line: The impact of mortgage resets is a moving target and the level of impending doom will depend primarily on the level of short-term interest rates over the next 2-3 years.

[surveyor]

resets

I have one property that will have its interest rate re-set in October of this year. If it were to re-set now, the interest rate would be 4.75% to 5.00% (the interest rate is currently at 4.5%). For me, the interest rate is based on the treasury one year rate (thank you mortgage broker!) instead of the LIBOR, which has been a higher rate. Also, because I used to live in this house, the interest rate would always re-set to something lower than what I can re-finance it to. So I’m not particularly hurt by the re-set. Even if interest rates go higher, my interest rate would still be substantially lower than the current rates.

Is anybody else in the same boat? I don’t know how many other people took interest rates like mine, but if the re-set doesn’t hurt as badly as most people on this board have anticipated, there might not be a flood of foreclosures in this next wave. I don’t know though maybe my situation is an anomaly.

Also, my HELOC rates are now below my first mortgage rates for my primary residence. How crazy is that?

[surveyor]

resets

I have one property that will have its interest rate re-set in October of this year. If it were to re-set now, the interest rate would be 4.75% to 5.00% (the interest rate is currently at 4.5%). For me, the interest rate is based on the treasury one year rate (thank you mortgage broker!) instead of the LIBOR, which has been a higher rate. Also, because I used to live in this house, the interest rate would always re-set to something lower than what I can re-finance it to. So I’m not particularly hurt by the re-set. Even if interest rates go higher, my interest rate would still be substantially lower than the current rates.

Is anybody else in the same boat? I don’t know how many other people took interest rates like mine, but if the re-set doesn’t hurt as badly as most people on this board have anticipated, there might not be a flood of foreclosures in this next wave. I don’t know though maybe my situation is an anomaly.

Also, my HELOC rates are now below my first mortgage rates for my primary residence. How crazy is that?

[surveyor]

resets

I have one property that will have its interest rate re-set in October of this year. If it were to re-set now, the interest rate would be 4.75% to 5.00% (the interest rate is currently at 4.5%). For me, the interest rate is based on the treasury one year rate (thank you mortgage broker!) instead of the LIBOR, which has been a higher rate. Also, because I used to live in this house, the interest rate would always re-set to something lower than what I can re-finance it to. So I’m not particularly hurt by the re-set. Even if interest rates go higher, my interest rate would still be substantially lower than the current rates.

Is anybody else in the same boat? I don’t know how many other people took interest rates like mine, but if the re-set doesn’t hurt as badly as most people on this board have anticipated, there might not be a flood of foreclosures in this next wave. I don’t know though maybe my situation is an anomaly.

Also, my HELOC rates are now below my first mortgage rates for my primary residence. How crazy is that?

[surveyor]

resets

I have one property that will have its interest rate re-set in October of this year. If it were to re-set now, the interest rate would be 4.75% to 5.00% (the interest rate is currently at 4.5%). For me, the interest rate is based on the treasury one year rate (thank you mortgage broker!) instead of the LIBOR, which has been a higher rate. Also, because I used to live in this house, the interest rate would always re-set to something lower than what I can re-finance it to. So I’m not particularly hurt by the re-set. Even if interest rates go higher, my interest rate would still be substantially lower than the current rates.

Is anybody else in the same boat? I don’t know how many other people took interest rates like mine, but if the re-set doesn’t hurt as badly as most people on this board have anticipated, there might not be a flood of foreclosures in this next wave. I don’t know though maybe my situation is an anomaly.

Also, my HELOC rates are now below my first mortgage rates for my primary residence. How crazy is that?

[surveyor]

resets

I have one property that will have its interest rate re-set in October of this year. If it were to re-set now, the interest rate would be 4.75% to 5.00% (the interest rate is currently at 4.5%). For me, the interest rate is based on the treasury one year rate (thank you mortgage broker!) instead of the LIBOR, which has been a higher rate. Also, because I used to live in this house, the interest rate would always re-set to something lower than what I can re-finance it to. So I’m not particularly hurt by the re-set. Even if interest rates go higher, my interest rate would still be substantially lower than the current rates.

Is anybody else in the same boat? I don’t know how many other people took interest rates like mine, but if the re-set doesn’t hurt as badly as most people on this board have anticipated, there might not be a flood of foreclosures in this next wave. I don’t know though maybe my situation is an anomaly.

Also, my HELOC rates are now below my first mortgage rates for my primary residence. How crazy is that?

[(former)FormerSanDiegan]

Bottom line: The impact of mortgage resets is a moving target and the level of impending doom will depend primarily on the level of short-term interest rates over the next 2-3 years.

[(former)FormerSanDiegan]

Bottom line: The impact of mortgage resets is a moving target and the level of impending doom will depend primarily on the level of short-term interest rates over the next 2-3 years.

[(former)FormerSanDiegan]

Bottom line: The impact of mortgage resets is a moving target and the level of impending doom will depend primarily on the level of short-term interest rates over the next 2-3 years.

[(former)FormerSanDiegan]

Bottom line: The impact of mortgage resets is a moving target and the level of impending doom will depend primarily on the level of short-term interest rates over the next 2-3 years.

[DWCAP]

-Looking ahead, and assuming rates stay low, those in 3-1 ARMs originated in 2006 are likely to see significant resets lower.

Two problems here. One the fed solved alot of the reset problem with significantly lower rates. Ok, but then next year this loan resets again, and again the year after that. Now inflation is running amok and the most recient fed cuts are not priced into that. Eventually they will have to face reality and pull a Paul V and raise rates. Suddenly all those problems come right back.
Now you could argue that time will increase wages, making this not a problem, but we are headed into a recession, when wages fall. Itll be many many moons before wages reach a point to support these loans. Also, increased inflation will take care of any excess wages people are earning in the next year or two.

-“The second problem in regards to POAs is that a huge portion of these loans originated if the least affordable, biggest bubble areas, like Florida, California, Las Vegas, etc. From a lender’s perspective that hugely increases the likelihood of default as well as the size of the problem should default occur.”

You could also fix all this if people could REFI, but they cant. The values of alot of these places are already in 2004 or worse. In places like MM we are seeing 2001 pop up. These loans are underwater and no one cept a gov bailout will refi them, no matter what the interest rate is.

So basically you have a Mexican Stand off. If the Fed keeps rates low inflation goes up, hurting any recovery. If it raises rates we are right back where we were with unaffordable payments. Cant lower your gun, cant shoot. So 2008 isnt the year we suffer the pain, 2009 or 2010 is. So what? Actually, Great, right when all those other problems that have not been fixed blow up we can have this one hit too. They can delay the pain or spread it out to alot more people (taxpayers) but it will all be felt one way or another.

[DWCAP]

-Looking ahead, and assuming rates stay low, those in 3-1 ARMs originated in 2006 are likely to see significant resets lower.

Two problems here. One the fed solved alot of the reset problem with significantly lower rates. Ok, but then next year this loan resets again, and again the year after that. Now inflation is running amok and the most recient fed cuts are not priced into that. Eventually they will have to face reality and pull a Paul V and raise rates. Suddenly all those problems come right back.
Now you could argue that time will increase wages, making this not a problem, but we are headed into a recession, when wages fall. Itll be many many moons before wages reach a point to support these loans. Also, increased inflation will take care of any excess wages people are earning in the next year or two.

-“The second problem in regards to POAs is that a huge portion of these loans originated if the least affordable, biggest bubble areas, like Florida, California, Las Vegas, etc. From a lender’s perspective that hugely increases the likelihood of default as well as the size of the problem should default occur.”

You could also fix all this if people could REFI, but they cant. The values of alot of these places are already in 2004 or worse. In places like MM we are seeing 2001 pop up. These loans are underwater and no one cept a gov bailout will refi them, no matter what the interest rate is.

So basically you have a Mexican Stand off. If the Fed keeps rates low inflation goes up, hurting any recovery. If it raises rates we are right back where we were with unaffordable payments. Cant lower your gun, cant shoot. So 2008 isnt the year we suffer the pain, 2009 or 2010 is. So what? Actually, Great, right when all those other problems that have not been fixed blow up we can have this one hit too. They can delay the pain or spread it out to alot more people (taxpayers) but it will all be felt one way or another.

[DWCAP]

-Looking ahead, and assuming rates stay low, those in 3-1 ARMs originated in 2006 are likely to see significant resets lower.

Two problems here. One the fed solved alot of the reset problem with significantly lower rates. Ok, but then next year this loan resets again, and again the year after that. Now inflation is running amok and the most recient fed cuts are not priced into that. Eventually they will have to face reality and pull a Paul V and raise rates. Suddenly all those problems come right back.
Now you could argue that time will increase wages, making this not a problem, but we are headed into a recession, when wages fall. Itll be many many moons before wages reach a point to support these loans. Also, increased inflation will take care of any excess wages people are earning in the next year or two.

-“The second problem in regards to POAs is that a huge portion of these loans originated if the least affordable, biggest bubble areas, like Florida, California, Las Vegas, etc. From a lender’s perspective that hugely increases the likelihood of default as well as the size of the problem should default occur.”

You could also fix all this if people could REFI, but they cant. The values of alot of these places are already in 2004 or worse. In places like MM we are seeing 2001 pop up. These loans are underwater and no one cept a gov bailout will refi them, no matter what the interest rate is.

So basically you have a Mexican Stand off. If the Fed keeps rates low inflation goes up, hurting any recovery. If it raises rates we are right back where we were with unaffordable payments. Cant lower your gun, cant shoot. So 2008 isnt the year we suffer the pain, 2009 or 2010 is. So what? Actually, Great, right when all those other problems that have not been fixed blow up we can have this one hit too. They can delay the pain or spread it out to alot more people (taxpayers) but it will all be felt one way or another.

[DWCAP]

-Looking ahead, and assuming rates stay low, those in 3-1 ARMs originated in 2006 are likely to see significant resets lower.

Two problems here. One the fed solved alot of the reset problem with significantly lower rates. Ok, but then next year this loan resets again, and again the year after that. Now inflation is running amok and the most recient fed cuts are not priced into that. Eventually they will have to face reality and pull a Paul V and raise rates. Suddenly all those problems come right back.
Now you could argue that time will increase wages, making this not a problem, but we are headed into a recession, when wages fall. Itll be many many moons before wages reach a point to support these loans. Also, increased inflation will take care of any excess wages people are earning in the next year or two.

-“The second problem in regards to POAs is that a huge portion of these loans originated if the least affordable, biggest bubble areas, like Florida, California, Las Vegas, etc. From a lender’s perspective that hugely increases the likelihood of default as well as the size of the problem should default occur.”

You could also fix all this if people could REFI, but they cant. The values of alot of these places are already in 2004 or worse. In places like MM we are seeing 2001 pop up. These loans are underwater and no one cept a gov bailout will refi them, no matter what the interest rate is.

So basically you have a Mexican Stand off. If the Fed keeps rates low inflation goes up, hurting any recovery. If it raises rates we are right back where we were with unaffordable payments. Cant lower your gun, cant shoot. So 2008 isnt the year we suffer the pain, 2009 or 2010 is. So what? Actually, Great, right when all those other problems that have not been fixed blow up we can have this one hit too. They can delay the pain or spread it out to alot more people (taxpayers) but it will all be felt one way or another.

[DWCAP]

-Looking ahead, and assuming rates stay low, those in 3-1 ARMs originated in 2006 are likely to see significant resets lower.

Two problems here. One the fed solved alot of the reset problem with significantly lower rates. Ok, but then next year this loan resets again, and again the year after that. Now inflation is running amok and the most recient fed cuts are not priced into that. Eventually they will have to face reality and pull a Paul V and raise rates. Suddenly all those problems come right back.
Now you could argue that time will increase wages, making this not a problem, but we are headed into a recession, when wages fall. Itll be many many moons before wages reach a point to support these loans. Also, increased inflation will take care of any excess wages people are earning in the next year or two.

-“The second problem in regards to POAs is that a huge portion of these loans originated if the least affordable, biggest bubble areas, like Florida, California, Las Vegas, etc. From a lender’s perspective that hugely increases the likelihood of default as well as the size of the problem should default occur.”

You could also fix all this if people could REFI, but they cant. The values of alot of these places are already in 2004 or worse. In places like MM we are seeing 2001 pop up. These loans are underwater and no one cept a gov bailout will refi them, no matter what the interest rate is.

So basically you have a Mexican Stand off. If the Fed keeps rates low inflation goes up, hurting any recovery. If it raises rates we are right back where we were with unaffordable payments. Cant lower your gun, cant shoot. So 2008 isnt the year we suffer the pain, 2009 or 2010 is. So what? Actually, Great, right when all those other problems that have not been fixed blow up we can have this one hit too. They can delay the pain or spread it out to alot more people (taxpayers) but it will all be felt one way or another.

[noone]

In discussing the ARMs (as opposed to option ARMs), he gives one sentence to the problem of teaser rates “In cases where lenders were aggressive, initial rates may have been lower than implied above, creating more of a reset problem down the road.” I was under the impression that these teaser rates were the rule rather than the exception. I have nothing to base that on though.

So I guess the questions are, just how many of these ARMs had teaser rates below the normal ARM rate? How low were the teaser rates? How long are the teaser rates in effect? Are the borrowers able to afford the payments at the normal rate (even if it does go down 1-2%)?

[(former)FormerSanDiegan]

I can speak for the loans I considered/took circa 2003-2005. In one case (2003) I had a 5/1 ARM, I/O loan on a refinance for an investment property. The rate was 5.625 and would have reset in Oct ’08 at LIBOR + 2.25. Based on current LIBOR the reset rate would be 5%.

However, as a prudent person I refied into a 30-year fixed at 6.25% late last year when short-term rates were a couple points higher. In the short run I would have been better off keeping my loan.

Pretty much the same terms were available in 2005. These would be considered either alt-A or prime loans and did not have negative amortization options.
When you look at mortgage reset charts the ones with teaser rates are typically categorized as Option adjustable rate loans. If you look at the Credit-Suisse chart on Mish’s Blog you might notice that these are approximately the same order of magnitude as the sub-prime resets happening now.
I believe that the default rates on the option ARMS may rival the sub-prime defaults we are currently seeing.

[(former)FormerSanDiegan]

I can speak for the loans I considered/took circa 2003-2005. In one case (2003) I had a 5/1 ARM, I/O loan on a refinance for an investment property. The rate was 5.625 and would have reset in Oct ’08 at LIBOR + 2.25. Based on current LIBOR the reset rate would be 5%.

However, as a prudent person I refied into a 30-year fixed at 6.25% late last year when short-term rates were a couple points higher. In the short run I would have been better off keeping my loan.

Pretty much the same terms were available in 2005. These would be considered either alt-A or prime loans and did not have negative amortization options.
When you look at mortgage reset charts the ones with teaser rates are typically categorized as Option adjustable rate loans. If you look at the Credit-Suisse chart on Mish’s Blog you might notice that these are approximately the same order of magnitude as the sub-prime resets happening now.
I believe that the default rates on the option ARMS may rival the sub-prime defaults we are currently seeing.

[(former)FormerSanDiegan]

I can speak for the loans I considered/took circa 2003-2005. In one case (2003) I had a 5/1 ARM, I/O loan on a refinance for an investment property. The rate was 5.625 and would have reset in Oct ’08 at LIBOR + 2.25. Based on current LIBOR the reset rate would be 5%.

However, as a prudent person I refied into a 30-year fixed at 6.25% late last year when short-term rates were a couple points higher. In the short run I would have been better off keeping my loan.

Pretty much the same terms were available in 2005. These would be considered either alt-A or prime loans and did not have negative amortization options.
When you look at mortgage reset charts the ones with teaser rates are typically categorized as Option adjustable rate loans. If you look at the Credit-Suisse chart on Mish’s Blog you might notice that these are approximately the same order of magnitude as the sub-prime resets happening now.
I believe that the default rates on the option ARMS may rival the sub-prime defaults we are currently seeing.

[(former)FormerSanDiegan]

I can speak for the loans I considered/took circa 2003-2005. In one case (2003) I had a 5/1 ARM, I/O loan on a refinance for an investment property. The rate was 5.625 and would have reset in Oct ’08 at LIBOR + 2.25. Based on current LIBOR the reset rate would be 5%.

However, as a prudent person I refied into a 30-year fixed at 6.25% late last year when short-term rates were a couple points higher. In the short run I would have been better off keeping my loan.

Pretty much the same terms were available in 2005. These would be considered either alt-A or prime loans and did not have negative amortization options.
When you look at mortgage reset charts the ones with teaser rates are typically categorized as Option adjustable rate loans. If you look at the Credit-Suisse chart on Mish’s Blog you might notice that these are approximately the same order of magnitude as the sub-prime resets happening now.
I believe that the default rates on the option ARMS may rival the sub-prime defaults we are currently seeing.

[(former)FormerSanDiegan]

I can speak for the loans I considered/took circa 2003-2005. In one case (2003) I had a 5/1 ARM, I/O loan on a refinance for an investment property. The rate was 5.625 and would have reset in Oct ’08 at LIBOR + 2.25. Based on current LIBOR the reset rate would be 5%.

However, as a prudent person I refied into a 30-year fixed at 6.25% late last year when short-term rates were a couple points higher. In the short run I would have been better off keeping my loan.

Pretty much the same terms were available in 2005. These would be considered either alt-A or prime loans and did not have negative amortization options.
When you look at mortgage reset charts the ones with teaser rates are typically categorized as Option adjustable rate loans. If you look at the Credit-Suisse chart on Mish’s Blog you might notice that these are approximately the same order of magnitude as the sub-prime resets happening now.
I believe that the default rates on the option ARMS may rival the sub-prime defaults we are currently seeing.

[noone]

In discussing the ARMs (as opposed to option ARMs), he gives one sentence to the problem of teaser rates “In cases where lenders were aggressive, initial rates may have been lower than implied above, creating more of a reset problem down the road.” I was under the impression that these teaser rates were the rule rather than the exception. I have nothing to base that on though.

So I guess the questions are, just how many of these ARMs had teaser rates below the normal ARM rate? How low were the teaser rates? How long are the teaser rates in effect? Are the borrowers able to afford the payments at the normal rate (even if it does go down 1-2%)?

[noone]

In discussing the ARMs (as opposed to option ARMs), he gives one sentence to the problem of teaser rates “In cases where lenders were aggressive, initial rates may have been lower than implied above, creating more of a reset problem down the road.” I was under the impression that these teaser rates were the rule rather than the exception. I have nothing to base that on though.

So I guess the questions are, just how many of these ARMs had teaser rates below the normal ARM rate? How low were the teaser rates? How long are the teaser rates in effect? Are the borrowers able to afford the payments at the normal rate (even if it does go down 1-2%)?

[noone]

In discussing the ARMs (as opposed to option ARMs), he gives one sentence to the problem of teaser rates “In cases where lenders were aggressive, initial rates may have been lower than implied above, creating more of a reset problem down the road.” I was under the impression that these teaser rates were the rule rather than the exception. I have nothing to base that on though.

So I guess the questions are, just how many of these ARMs had teaser rates below the normal ARM rate? How low were the teaser rates? How long are the teaser rates in effect? Are the borrowers able to afford the payments at the normal rate (even if it does go down 1-2%)?

[noone]

In discussing the ARMs (as opposed to option ARMs), he gives one sentence to the problem of teaser rates “In cases where lenders were aggressive, initial rates may have been lower than implied above, creating more of a reset problem down the road.” I was under the impression that these teaser rates were the rule rather than the exception. I have nothing to base that on though.

So I guess the questions are, just how many of these ARMs had teaser rates below the normal ARM rate? How low were the teaser rates? How long are the teaser rates in effect? Are the borrowers able to afford the payments at the normal rate (even if it does go down 1-2%)?

[Author]

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