Don't wait too long friend. Many of those could be sold off or refinanced into fixed rates by then. Remember, not everyone on ARMs are ready to go belly up, and those holding ARMs are a small overall percentage of homes, and those hurting are no doubt even a much smaller percentage of that.
Patently false. Unless by "many" you mean "some or few". More than 20% of those with Option ARMs from 2004 and 2005 were upside down on the loan as of 2006, and has to be far higher by now, since California house values have collapsed over 25% in that time. You can't refinance a home with negative equity. Banks won't do it.
Remember, not everyone on ARMs are ready to go belly up,
Further, 70% of those with Option ARMs are only paying the minimum, according to Fitch Ratings. This is catastrophic. When the rates reset, they are dead. And the rates are already resetting, not because the time is up to reset, but because by paying only the minimum, the loans have hit the trigger to automatically reset.
and those holding ARMs are a small overall percentage of homes,
Patently false, in California. 45% of all mortgages written in California after 2003 were subprime, Option ARM or Alt-A. The San Francisco bay area is nick-named the "Alt-A area". The numbers of Option ARMs and Alt-As combined are staggering and rival subprime.
and those hurting are no doubt even a much smaller percentage of that.
Patently wrong one last time. With 70% of Option ARM holders paying the tiny minimum and due to reset on homes that perhaps 50% of them are upside down on, I would predict that fully half of all Option ARM holders are in serious trouble and will be losing their homes if they aren't saved by the Housing Bank Bailout Rescue Plan.
The data I see out there in the bond market on these tranches of debt is not pretty. That’s where I keep coming at this from: the bond market. I ignore everything the realtors say, everything the housing companies say, etc.
I’m looking at ONLY the parameters of mortgages, securitized mortgages, bonds, etc.
As of this past December/January, when people finally started to get interested in the mortgage issue in earnest, some quick analysis of the 2005,2006 vintage Option-ARM’s showed that at least 75% of people who took out OA loans in ‘05 and ‘06 were making the minimum payment on the note; this results in a neg-am on the missing interest portion.
That can’t go on forever.
The Option-ARM product was never intended for Joe-n-Jane Average to use to buy houses. It was a product pitched at people with substantial assets in comparison to the debt on their house, not as a vehicle to allow people who were strapped for cash flow to get into over-valued real estate.
The stats indicate that in the 2005/2006 vintage (and perhaps more), that a whole lot of people (once again) could not really afford the house they purchased. The house price was inflated, the buyers were strapped for cash. The only differences between this situation and the sub-prime situation are these:
1. These borrowers had better-than-subprime credit - often, they had “prime” credit ratings.
2. The amount they borrowed was often much more than in the sub-prime space.