Entries Tagged 'Adjustable Rate Mortgage' ↓

The poor jobs report may be the catalyst for the Federal Reserve to stop raising interest rates and give the mortgage industry a chance to catch its breath and slow down a bit. The marketplace has been in turmoil as the Federal Reserve has been raising interest rates putting pressure on new borrowers and those in Adjustable Rate Loans (ARMs).

Since the Fed controls short term rates, a pause by the Fed means that adjustable loans will benefit the most from their likely neutral stance on rates. However, fixed rates might or might not see a benefit even though it is widely believed the Fed will pause raising rates on Tuesday.

Fixed rates are based on investors that trade Mortgage Backed Securities, it is these investors’ perception of inflation that controls the direction of fixed rate mortgages. These same investors will be more interested in the Fed’s statement than the pause in rate increases. If the Fed, in its statement, indicates that inflation is anything but under control fixed rates may in fact increase even though short term rates are held steady. Although we believe this scenario remote, it is possible and has occurred several times in recent history.

The bottom line - In our opinion a neutral statement by the Fed in conjunction with a pause in rate hikes will likely stabilize or slightly improve the market, Although unlikely, any indications that a pause will be temporary or not sustainable will likely result in higher rates. via OriginatorTimes.com.

With the estimated 2 trillion dollars of Adjustable Rate Mortgages coming due, a new mortgage is being slowly introduced to the market, the 50 year mortgage. By amortizing the loan out so far, they lower the rate and allow people to migrate from their ARMs that are having increased interest payments to the 50 year mortgage that provides lower payments than an equivalent 30 year mortgage.

Getting a 50-year loan is a perfectly rational way to avoid an interest-only or payment-option adjustable-rate mortgage, he said. With an interest-only mortgage, the minimum monthly payment doesn’t put any money toward principal. A payment-option ARM goes a step beyond that: In some circumstances, the minimum monthly payment doesn’t even cover the interest accrued that month. You make a minimum payment at the beginning of the month, and four weeks later, you owe more than you owed before the payment. This condition is called negative amortization, or “going negative.”
Forgive borrowers for thinking that it makes better sense to amortize a loan over 50 years than to get an option ARM or interest-only mortgage.
“Payment-option ARMs and interest-onlies have been so popular, we wanted to come out with a longer-term, fully amortizing loan for people who don’t want to go negative,” Diaz said.
Regulators and consumers worry that foreclosures will surge in coming years, especially among homeowners who got interest-only and payment-option ARMs. The 50-year loan is a lifeline for them, Diaz said. via the Seattle Post

The rising interest rates are forcing more and more homeowners to default on their mortgages and go into foreclosure according to the the Chicago Tribune today. Those in the midwest are being hit the hardest by the trend. If you are holding an adjustable rate mortgage you are looking at a huge increase in the cost of housing as your grace period expires and the mortgage starts adjusting.

Foreclosures across the U.S. have been hovering near historically low levels, as home prices have risen nearly 50 percent in five years. This appreciation enabled troubled borrowers to sell their homes relatively easily to resolve mortgage difficulties.

Now, a survey of the latest data confirms, that’s starting to change, with an uptick across the U.S. in foreclosure rates and late mortgage payments. But even the new higher rates of foreclosure and delinquencies are low in historical terms.

Nationally, the number of mortgage loans that entered some stage of foreclosure rose to 117,259 in February, up 68 percent from the same month a year ago, according to RealtyTrac, an online foreclosure data service in Irvine, Calif.

Delinquencies are up as well. Data provider LoanPerformance, a subsidiary of First American Real Estate Solutions, has reported that 3 percent of the most vulnerable loans, those made to borrowers with less than a stellar credit history, were 90 days delinquent in February. That’s up from 2.84 percent in February 2005.

Meanwhile, 90-day delinquencies for loans made to borrowers with better credit rose to 0.76 percent in February from 0.67 percent in the same month of 2005. via Chicago Tribune

According to John M. Reich, director of the Office of Thrift Supervision, speaking at the New York Bankers Association meeting recently, the mortgage industry is taking too many risks with their lending portfolios could be an unacceptable risk for the companies and the economy.

Non traditional loans are very prevalent in parts of the country as prices have hit levels that are unaffordable with conventional mortgages. Interest Only Mortgages and Adjustable Rate Mortgages are the norms in these areas. These loans work well in rising markets but can be extremely dangerous in periods of high interest rates or falling home prices.

Reich says the Feds don’t want to end the use of mortgage products that are clearly in demand, especially when some lenders have a track record of managing the loans’ inherent risks.
Instead the Feds seek to corral use of the loans and prevent them from falling into the hands of less sophisticated borrowers and others with weaker credit profiles.
To that end Reich said regulatory examiners are now “digging deeper” into loan portfolios to learn the level of risk lenders are facing. Examiners will scrutinize loan documentation, pricing, loan-to-value ratios, and overall underwriting standards.
“We continue to monitor overall operational costs, again, with close attention paid to costs attributable to prior build-ups in mortgage lending operations. In addition to our ongoing monitoring of interest rate risk, we are looking at credit risks, particularly with respect to nontraditional mortgage lending products,” Reich said.  via  the Realty Times