When Will the Tsunami of Foreclosures Hit?

MSN.com Real Estate ^ | 9/5/2006 | Charles DuBow

[ex-Texan]

With millions of adjustable-rate mortgages about to reset this fall, experts expect a wave of foreclosures by Americans in every income bracket. Here's why they could soar in late 2006 and beyond:

Those easy-mortgage chickens are coming home to roost.

This fall the adjustable-rate mortgages (ARMs) 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.

This is a matter of concern because ARMs are typically initially made at a lower rate and then increase after a fixed period of time, usually one, three, five, seven or 10 years, after which the rate will more closely reflect current rates. As interest rates increase, mortgage payments increase. Between $400 billion and $500 billion in ARMs are due to be reset by the end of 2006. The following year will be even more dramatic, when more than $1.5 trillion will be reset.

For many Americans, this is scary news, if hardly unexpected. * * * [M]any 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. * * *

Unprecedented situation:

* * * A major concern is that the number of ARMs issued at subprime rates to borrowers with lower credit ratings is not known. "We know that ARMs default at a higher rate than fixed, and subprimes default at higher rates than primes," says Sharga. "Never have so many ARMs reset at the same time. There is no precedent for it."

[Mase]

Dick Morris is a better forcaster than you

But does he feel the same way about toes?

[RobbyS]

Golden state?

[Always Right]

In the meantime, mortgage rates continue to decline making the resets less and less terrifying, the economy remains strong, unemployment remains low and incomes continue to rise. I'm certain he's reporting all this in a balanced and objective manner on his website.

It is pretty scary. And it seems the bubble bursting comes down to home prices only going up 1%. Is that what 4 years of fearmongering came down to? Even with all these massive increases in foreclosures, we are still well below average. The is like 1929 all over again.

[Thrusher]

How do you figure that? Where exactly do you get these numbers you throw around on here?

Dial 867-5309.

[A CA Guy]

This is related and should be of interest regarding this thread.

http://www.freerepublic.com/focus/f-news/1695572/posts

[HangnJudge]

My house is paid off so all I owe are taxes.

Yup, the secret here is to not move until forced by circumstances to do so, and to not buy more than is needed

I have no remaining loans of any kind
Feels kinda weird at times but
you get over it

[jennyjenny]

Either that, or some "mortgage gansta" was able to rip his head off because he didn't bother to read his paperwork.

[Mase]

Is that what 4 years of fearmongering came down to?

Yup, if we'd listened to our self-proclaimed maven of real estate, we wouldn't have purchased homes during the past four years and would have missed out on the incredible increases in value. Now, like ex-Texan, we'd be sitting on the sideline wondering how we're ever going to find a place to call our own, or scoop up foreclosures and retire on the Italian Riviera, or avoid living in a van down by the river.

[RockinRight]

or avoid living in a van down by the river.

[Centurion2000]

You know in Rome and Greece you would have been impaled for revealing this. But here ... well you just have a couple of guys gunning for you. Nice map.

[wouldntbprudent]

Exactly: ARMs done smartly, with a full understanding of the terms and the ability to meet those terms even in the worst-case scenario, can be beautiful. Lots of money can be saved.

Many people with a fixed mortgage also end up refinancing sometime within the first ten years. That's one way to handle an ARM as well: pocket the savings, then refinance when the rates are favorable.

[NYC Republican]

Not all ARMs were for 1 year period. Smart bankers convinced borrowers to go for 3 year+ ARMs. They have "limits".

Yep, I took out a 5/1 ARM (fixed for 5 years, ARM after that), and I have just over 3 years left on it. At the time, the ARM was at 4.625%, vs. fixed rates close to 6%. I'm still not nearing panic mode... Talk to me in 2 years...

[frankiep]

ping

[Chode]

i guess i'm lucky my house is paid for then...

[Trajan88]

sir/madame... get it right... it is Bush's fault... NOT!

[wouldntbprudent]

Yet there seems to be a club who take perverse pleasure in clicking on these threads solely for the purpose of mocking the info?

Anyway, makes for lively reading!

[wouldntbprudent]

Thanks for the info!

[cripplecreek]

Yup, the secret here is to not move until forced by circumstances to do so, and to not buy more than is needed

Some (myself included) would call that the traditional American dream. I've got a couple of sore points with many American's ideas about the way things should be. My wife and I plan to live here for at least another 15 to 20 years then move to northern Michigan for good.

Many of America's poor aren't as poor as they think they are. In reality they're so busy trying to have the newest and best of everything to be happy with what they have.

[GOPJ]

Folks who care will walk down to their local lender - and some of these folks have to be on a first name basis with the number of times they've refinanced, and they'll refinance one more time. This is "owning as renting", and nothing more...

[RegulatorCountry]

"Thanks for the info!"

You're quite welcome.