Tuesday, September 05, 2006

'No Precedent' For Exotic Loan Mess

MSN Real Estate reports on foreclosures. "Those easy-mortgage chickens are coming home to roost. This fall the adjustable-rate mortgages that millions of Americans took out during the recent housing boom will be reset, and many homeowners will see their monthly mortgage payments shoot up by as much as 20%. According to the Mortgage Bankers Association, of all mortgages financed in 2005, 36% were ARMs, the highest ever."

"For many Americans, this is scary news, if hardly unexpected. Those home buyers may have thought they would be able to flip their houses quickly and avoid the rise in their mortgage payments. But now, many of them are finding themselves stuck in a house they may soon no longer be able to afford, and, as the real estate market peters out, there's little they can do about it."

"Unable to pay their mortgage, and hit by the double whammy of higher gas prices and higher credit-card rates, many Americans in nearly every income bracket may be forced into foreclosure."

"In a survey of foreclosure rates in the 100 largest metropolitan statistical areas (MSAs) in the U.S., Indianapolis found itself at the head of the list. It performed worse than any other metro area in the country, with nearly 0.987% of all its homes in foreclosure, or one foreclosure for every 101 households. The next worst performer was Atlanta, with 0.904% of all homes in foreclosure, or one home in every 111 households."

"Indianapolis, for example, has a weak job market and a weak real estate market. On average, homes there take twice as long to sell, and then often for a fraction of the market value. Atlanta, on the other hand, has suffered because of both an exceptionally high number of bad mortgages that were being written as well as the fact that many of the industries there are retrenching, which leads to job loss or salary reductions."

"'We know that ARMs default at a higher rate than fixed, and subprimes default at higher rates than primes,' says Realtytracs Rick Sharga. 'Never have so many ARMs reset at the same time. There is no precedent for it.'"


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