Tags: housing | option | arm | resets

Mortgage Woes Will Get Worse, Faster

Tuesday, 02 Sep 2008 09:49 AM

The housing crisis is about to take a wrenching turn downward, according to new research, and it will push many more Americans out of their homes in short order.

Fitch Ratings reports that it expects a clause in many adjustable rate mortgages to cause many to reset even earlier than the typical five-year term, pushing the amount owed by strapped borrowers to $67 billion in less than two years.

Most of the $200 billion in outstanding adjustable mortgages aren't supposed to reset until 2010, reports the Financial Times.

But those same loans contain a limit on negative amortization, that is, once home values drop by enough, the reset kicks in early.

As a result, the $29 billion worth of such loans are expected to reset by the end of next year, then another $67 billion will do so in 2010.

Fitch notes that more than half will reset because of the negative amortization clause.

Monthly payments in those cases will shoot up by more than 60 per cent, or an extra $1,053 per month.

"The combined impact of payment shock ... declining home prices and restricted availability of mortgage credit may leave many option ARM borrowers unwilling to continue paying their mortgage," Fitch analyst Huxley Somerville told the newspaper.

"The current severe environment has left borrowers with few alternatives to foreclosure."

In California, the world's ninth-largest economy, mortgage resets are likely to worsen as unemployment rises, Chapman University economist Esmael Adibi told the Los Angeles Times.

He sees unemployment rising there through 2009.

"The bad news in housing so far happened because of mortgage resets and financial reasons," Adibi says. Now, job losses will begin to force foreclosures too.

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The housing crisis is about to take a wrenching turn downward, according to new research, and it will push many more Americans out of their homes in short order.Fitch Ratings reports that it expects a clause in many adjustable rate mortgages to cause many to reset even...
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Tuesday, 02 Sep 2008 09:49 AM
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