Those mortgage resets are HUGE--you must not understand how Option ARM (pick a payment) and Alt-A (interest only--stated income) work. A lower interest rate will help but is not the reason the payment is going to skyrocket. With the Alt-A, you only pay interest for a set # of years--usually 3-5. After that year, the loan turns into a conforming loan with principal required and obviously you must pay it in 25-27 years, and not in 30 years so payments jump 50% or more. An option arm is even worse--You can choose to pay less than the interest so your principal gets bigger and bigger each month (which supposedly 70% are choosing to do). Once the principal hits 110% to 125% or after a set # of years it recasts to a conforming mortgage where you have to pay Principal & interest on 110-125% in the 25ish years. Most people's payments go up at least 80+% upon reset. If your loan was based off a teaser 1-3% interest rate it could more than double.
The grocery chain I work for is on the high end of the market (think Whole Foods--but not them)--we get virtually none of our business from illegals.
People are APPLYING to refinance but only people with 20% equity (which eliminates virtually anyone who purchased since 2004 which are the ones in trouble) are going to get anywhere.
If you’re a lender, getting payments from a borrower, and suddenly it’s time to reset, but you know that if you do, then your borrower will stop making payments, what are you going to do? You’d be particularly stupid to just go ahead and do it anyway wouldn’t you? These problems are being worked out now. They aren’t waiting for the magic reset date to deal with them. And borrowers who know that they won’t be able to make the payments in 6 months aren’t waiting for 6 months before they stop making the payments. So if there is going to be a problem, you’re seeing it now for the most part.
Of course, it is true that lenders could be doing more than they are doing, but don’t assume that they are all a bunch of fools who wait until they are already falling off a cliff before making adjustments. If they were really smart, they would figure out what the borrower CAN pay and write down large portions of the debt, if need be to keep the payments coming. In fact, institutional lenders are selling mortgages at discounts to companies who specialize in precisely that kind of negotiation. While the economic adjustment is taking place, there will obviously be dislocations and reallocations of resources that will involve unemployment. But in the end, the machinery will be moving forward at the same speed it has been moving. We may have less accumulated wealth to show for it, but wealth is one thing, and income is another.