ARM Resets to Hit the Fan in 2008
FDIC Chairman Sheila Bair is urging lenders to find ways to help borrowers keep their homes, and the issue is becoming a talking point among presidential and congressional candidates. “Keep it at the starter rate,” Bair said in October. “Convert it into a fixed rate. Make it permanent. And get on with it.”
California just cut a deal with 4 lenders to not reset some loans.
Countrywide, GMAC, Litton and HomeEq - which collectively service more than one quarter of subprime loans to people with poor credit - agreed to maintain the initial, lower interest rate for some subprime borrowers whose rates are scheduled to jump significantly higher. To qualify, borrowers must occupy their homes, have made their payments on time and prove they cannot afford payments with the higher interest rate.
The California rate freeze is temporary.
And here is the reaction of one California mortgage broker who doesn’t like the idea because it will support real estate prices.
5 responses so far ↓
1 Thomas Johnson // Nov 26, 2007 at 9:59 am
Why would the FDIC be involved in this issue? I thought that all these ARM’s were securitized and purchased by investors outside the banking system.
Sheila, please don’t tell me that the banks’ reserves are heavily invested in toxic mortgage securities! Is this the RTC/S&L crisis all over again?
Hello? Anybody home?
2 Arizona Mortgage Guru » Seeking a Cap on Adjustabe Rate Mortgage Rates // Nov 26, 2007 at 12:11 pm
[…] In other major subprime news, the Wall Street Journal reports a Bank of America estimate that “$362 billion worth of adjustable-rate subprime mortgages” will adjust next year. This means the mess is only halfway through. Read the full WSJ article for details (hat tip John Wake, Arizona Real Estate Notebook). […]
3 Cbass // Nov 27, 2007 at 8:42 am
“U.S. home prices fell 4.5 percent in the third quarter from a year earlier, the sharpest drop since Standard & Poor’s began its nationwide housing index in 1987 and another sign that the housing slump is far from over, the research group said Tuesday.” … “Tampa and Miami led the index with the lowest year-over-year declines at 11.1 percent and 10 percent, respectively. It also showed drops in San Diego of 9.6 percent; Detroit, 9.6 percent; Las Vegas, 9 percent; Phoenix, 8.8 percent; and Los Angeles, 7 percent. The S&P’s 10-area index decreased 5.5 percent in September from the previous year.”
azcentral.com/realestate/articles/1127biz-homeprices27-ON.html
4 John Wake - Real Estate // Nov 27, 2007 at 10:04 am
A better visualization of the Shiller numbers is here http://www.arizonarealestatenotebook.com/2007/10/30/case-shiller-housing-index-updated-through-august-2007/
5 Peter Fork // Nov 27, 2007 at 12:18 pm
This looks really bad. Sellers will have a hard time competing with foreclosed houses, especially in new developments.
A lot of value will be lost if nobody takes care of those foreclosed homes. What a waste.
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