More foreclosures on the way as thousands of option ARMs reset

Shared by Savior70 on Fri Sep 18, 2009 5:28 am
Amidst signs of stabilization, with an increase in sales and rise in home prices in certain states, the mortgage industry braces for a fresh set of foreclosures. Many of the option ARM loans, offered to even less credit-worthy borrowers during the housing boom, have started to adjust. In Arizona alone, almost 128,000 of those option ARMs are expected to reset over the next year, while many have already begun to adjust this month. What this means is, there's no respite from foreclosures in near future. It also means there will be a significant rise in the number of mortgage frauds in the days to come. When the teaser rates on option ARMs will reset, the monthly payments will increase to a great extent. The payments can even go up to 5 or 10 times the amount the borrowers have so far been paying on their loans. As a result the number of scams is expected to increase as the distressed homeowners will be desperate to refinance their loans. Source: http://www.reuters.com/article/ousivMolt/idUSTRE58G5U320090917

Community Members Opinion

jerry

Joined: 17 Oct 2005

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Posted: Fri Sep 18, 2009 7:03 am Post subject:

Hi Savior, It is true that the number of foreclosure and defaults in only going to increase in the coming months. During the economic boom, many of the borrowers opted for option ARM loans as they offered low initial mortgage payments. They were pretty much overwhelmed by the low teaser rates and options like low minimum monthly payments on this type of loans. What they failed to realize is, the low initial payments would only increase the amount of debt they owe on the property. As a result, when the ARM loans started to reset, they got overburdened with the mortgage payments and defaulted on their loans. It would be wonderful if the Govt. can come up with some programs, like the Home Affordable Refinance Program, to help these homeowners refinance the loans. However the fear of a rise in the number of mortgage scams is quite relevant in this situation. The Govt. will have to be cautious to make sure people do not fall into the trap laid by the fraudsters and land themselves into a bigger mess. Thanks, Jerry

Samantha

Joined: 16 Sep 2005

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Posted: Tue Sep 22, 2009 5:10 am Post subject:

Yes, we're yet to come across a new wave of foreclosures with several Option ARMs getting ready to reset to interest rates much higher than the initial teaser rates. As it is, Option ARMs lead you to negative amortization, that is, it gives you the chance to make minimum monthly payments (which mostly go towards the interest) thereby adding to your outstanding principal balance. Several borrowers who've applied for these loans are already in default. Their situation is likely to get worse when these loans go through a major reset. Experts estimate that around 469,000 option ARMs were offered between 2000 and 2007. With such a large number of loans being issued, there'll be more and more foreclosures once the ARMs face a reset. In other words, any sign of market recovery is likely to fade away with this forthcoming crisis. _________________ Know how to compare lenders with mortgage booklet


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