Resetting Rates:
Current interest rates are at or near historic lows with 30 year fixed mortgages below 5 percent while ARM's are likely to readjust and drive the cost of monthly mortgage payments to double their former payments. Unfortunately, many current ARM holders do not qualify for refinancing due to changes in employment status, high loan to value ratios and increased debt to income percentages.
Evaporating Equity:
Not only did millions of Americans take out Adjustable rate mortgages but they built additions and over-improved their homes based upon loans. As home values fell, so did the equity reserves required to refinance their ARM mortgages. Whether it was a first mortgage with minimal down payment or a second (and even third) mortgage, lower property values have all but erased excess equity from a large number of buyers.
Cheaper to Walk:
Many homeowners are finding it less expensive to simply walk away from rapidly rising mortgage, rent for awhile then repurchase. According to industry experts, a significant number of homeowners are capable of making the mortgage payment but simply don't desire to do so given the cost of purchasing the same home after foreclosure. Current homeowners are eligible for FHA loans in as few as three years after default - creating an inverse incentive to continuing paying on a property worth tens (or even hundreds) of thousands dollars less than the existing mortgage.
Renting an Increased Option:
Throughout the nation lenders are getting creative in order to reduce the inflow of defaulting properties on their portfolio; one of the more popular options among existing homeowners is the ability to rent your current property for a specified period of time.
ReFi with an ARM?
It's true, the FHA has a 3.87 five year adjustable rate mortgage option designed to help keep payments affordable.
Unfortunately, it may simply delay the pain until interest rates continue to rise later. However, with a 2 percent cap on each adjustment/rate increase, it could conceivably buy time for those in unusual short term situations such as temporary illness, job loss of other large expenses. It also has the benefit of "buying time" for the banks and lenders who are in no hurry to acquire even more properties given the current backlog of non-performing properties in their portfolio.
What is a savvy investor to do? Get ready for the coming wave of ARM properties to hit the market. But more importantly partner up today with me, Be sure your credit is in place and position yourself to solve problems for both homeowners and lenders in need of a new start.
Angel Investors
"Fools rush in where Angels fear to tread" ... this is maybe not the time to rejoice in ARM financing: Of Mortgage Brokers, ARMs, Attrition and Marathons unless you know EXACTLY you will be able to shoulder the higher rates later.
ReplyDeleteDear Crisis,
ReplyDeleteThanks for the comment, I actually enjoy your blog. But as you have not noted by your own charts there are $20-35 billion dollars worth of notes adjusting in the next 2 years. I will buy those at a discounted rate, Laughing like a fool all the way to the bank.
Remember I partner and teach people how to buy the toxic assets, discounted.