September 2, 2008

How Long Will We See Declines: Try 2011

Housing Wire, one of the better blogs, has a scary article on ARM resets. Fitch is a highly respected credit rating service, similar to the work of Moody's or Standard and Poors. A rating agency providing ndependent credit opinions. According to Housing Wire, Fitch is reporting that this will not end and perhaps be worse for the next 36 months.

"The majority of option ARM borrowers have elected to make the monthly minimum payment over the past 24 months,” Fitch said in the report. “As a result, a large number of these loans, especially those with 40-year amortization and 110% principal caps are expected to reach their recasts before the end of the five-year mark.”

We are talking about a lot of money involved in the options ARM's market: $29 billion recasting in 2009 and additional $67 billion to recast in 2010; of this, approximately $53 billion is attributed to early recasts.

Fitch said it expects 90-day plus delinquencies — already ranging from 10 percent to 24 percent, depending on vintage — to more than double after recast for 2004-2007 vintage loans. It gets worse: Fitch also estimated that the potential average payment increase on the re-casting loans to be 63 percent, representing on average an additional $1,053 due each month. Via

We are generally blown away when we see double or even triple whammy's. But this is a combo of declining values, higher monthly costs, refi's harder than ever, negative amortization and job losses. Whew! Do I stay or do I go.....

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Howard Bell
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