Resetting Option ARM’s Increasing Mortgage Delinquencies

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The unemployment rate in the U.S. is now at 9.7%.   A record 7.58% of U.S. homeowners with a mortgage were delinquent by at least 30 days in the August, up from 7.32% in July according to Equifax.

August marked the fourth consecutive month with an increase in  mortgage delinquencies.  In the months leading up to August the rate of sub-prime mortgage delinquencies remained at 39%.  As we move away from the summer selling season the rate of sub-prime mortgage delinquencies rate has risen to 41%.

We must now prepare for the next foreclosure crisis as we see payment option adjustable rate mortgages beginning to reset.  Option ARM’s are now considered among the riskiest offered during the recent housing boom.

This option has left many borrowers owing more than their home is worth.  In Arizona, 128,000 of these mortgages will reset over the next year, many began re-adjusting this month.  These mortgages differ from conventional mortgages by offering an option to pay only interest each month or a low minimum payment which ultimately leads to a higher balance in the loans principle termed, “negative amortization”.

Once the balance of the loan reaches a pre-determined level or the mortgage has reached a specific date, the borrower must begin making full payments to cover the new amount.  The interest rate may have been set at a low teaser rate that will reset to a much higher interest rate, increasing payments to as much as  5 or 10 times higher than the original payment.

Attorney General Terry Goddard (AR),  says, “they (Option ARMs) threaten a much greater hit to the consumer than the sub-primes”.  This type of mortgage option is usually offered to consumers with low credit scores or former debt delinquencies.  These are borrowers who were unable to purchase a home through the traditional loan options and would not otherwise have qualified for a loan.

Economist are warning consumers to be aware of the surplus of unsold homes that combined with foreclosure outlook will suppress home prices for the remainder of 2009.

Related posts:

  1. Mortgage Delinquencies Continue to Increase
  2. Mortgage Delinquencies Surge
  3. Strategic Mortgage Defaults A Cause For Concern
  4. Reverse Mortgage Option Gaining Momentum, Seniors at Risk
  5. Report: HAMP Program Only Making A Dent In Foreclosure Crisis

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