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ARMs resets good news



May 01, 2009 – Comments (0)

Mish has a post about the ARMS resets.  This is where people opted into short term mortgages at low rates and for a while were looking at huge increases in payments when their terms expired.  The current low rates means that these people are no longer looking at increases and may actually see increased debt reduction as more of their payment goes to principal. 

 There is another huge problem showing up for 2010 that is going to hit hard and that is the Pay Options ARMs.  

The problem with Pay Option Arms is over 80% of POA mortgagees only make the minimum payment. Given that minimum payments typically do not cover interest owed, the loan balance increases every month. This is called negative amortization, and it has been going on for years.

 So these things are coming due next year and into 2011 and they will raise havoc.  The other problem is the falling home prices.  They can kick in a clause that requires the borrowers to all of a sudden start paying principal and interest. 

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