The Foreclosure Report

'Unendurable Strain' From ARM Resets

A pair of reports on foreclosures. "Looks like Florida homeowners are feeling pressure keeping up with their mortgages. The most recent data from the Mortgage Bankers Association shows that past-due mortgage loans in Florida climbed to the highest level in five quarters, to 4.66 percent. Part of the reason? Those adjustable-rate mortgages that start with low teaser rates but eventually jump to market rates of 6 percent or more."

"Knowing that delinquencies are on the rise, it will be interesting to see what happens with actual foreclosures, the proceedings that lenders can start once loans are past due. In Orange, Osceola and Seminole counties, more than 6,300 homeowners went into foreclosure last year."

And from Colorado. "More than one-fourth of recent Colorado home buyers and refinancers have less than 5 percent equity in their homes and almost half have less than 15 percent, putting them at risk of financial hardship when adjustable-rate mortgages ratchet up in the next few years."

"That's among the conclusions of a new study that ranks Colorado second among states with the highest percentage of risky properties. The report raises questions about whether too many Colorado buyers are stretching themselves too thin and relying too heavily on appreciation rates to bail them out."

"An example: A homeowner with a 1 percent introductory adjustable-mortgage rate on a $300,000 home would see monthly payments jump to $1,799 from $965 when the schedule is reset to a market rate of 6 percent. That could become an 'unendurable strain' on some households, Cagan said."

"States with the lowest percentage of high-risk properties -- where borrowers have more equity and are less likely to experience the effect of adjustable-rate mortgage increases, include New York, Hawaii, Massachusetts, Connecticut and New Jersey, the study reported. States with the highest percentage of risky properties were Tennessee, Colorado, Minnesota, Alabama and Arkansas."

"The increasingly precarious financial position of some homeowners who have little or no equity, and recent poor performance of some adjustable-rate mortgage loans, have caught the attention of mortgage lenders, investors and regulators, said Tom Ninness. 'For us as lenders, we're seeing that we have to be more diligent in how we underwrite loans,' Ninness said. 'That's why the investors are now tightening up their requirements to have a certain amount of monies left over after they [borrowers] pay their closing costs and prepays.'"

"'Price appreciation in the real estate market has slowed and, in many areas, leveled off,' Jason Berman, president of the Colorado Association of Mortgage Brokers said. Low interest rates have made adjustable-rate mortgages attractive, and 'aggressive financing products that incur negative amortization may also be contributing somewhat to the effect.'"

"Moody's Economy.com estimated about one-fourth of all mortgage loans outstanding, more than $2 trillion worth, come up for resets in 2006 and 2007."

"Ninness said the study reinforced why it behooves him to make sure clients are making prudent financing decisions. It's not uncommon for him to see borrowers who qualify for a $200,000 principal-and-interest payment loan opt for an interest-only loan that allows them to get into a $250,000 home. 'I've actually had people who have walked away from me and have gone to another lender because they could buy more home than I could give them,' Ninness said."

posted by Ben Jones @ 2:07 PM