Adjustable Rate Loans Hit Record
Borrowers continue to defy logic by seeking adjustable rate mortgages (ARMs) when rates are expected to rise. From the Washington Times, "Mortgage Bankers Association showed 36.6 percent of mortgages, including refinancings and new purchases, had adjustable rates as of last week, which is a record. The figure was more than 3 percentage points higher from the prior week and 9 percentage points above a year ago."
The article speculated that the move into ARMs was a response to higher prices. "With housing prices continuing to rise in many areas, buyers seeking to keep payments low are opting for ARMs."
"Economists fear some of these homeowners, who are already financially stretched, may get into trouble if interest rates rise and their payments go up when their fixed-rate period ends, typically in one to seven years."
6 Comments:
Funny this article came out today. Just this morning, I posted an entry on my personal credit blog attempting to explain why so many people are taking ARMs right now with interest rates as relatively low as they are. This article confirms my conclusions.
-Stan
Now we know how people can still afford homes! I can't believe people are actually doing this when interest rates look like they have no place to go but up. I can't believe people are actually writing these mortgages either. this can't go on forever, at some point even the subprime and ARM swamp have to dry up too.
They think they're going to move on and sell at a profit before they reach the 3 or 5 year point at which higher rates kick in. Their brokers forgot to tell them that it's hard to sell or refinance when you're upside down.
The big question now is whether Easy Al is really going to bring rates up to even a neutral level. If he backs down, which seems likely, then these people will have a reprieve.
If I were choreographing this train wreck, I'd get some disposable person to take the chairmanship after Al steps down next year. Someone who doesn't care about his "legacy" and will just take a payoff in exchange for being the infamous hatchet man of the American asset "economy". After the bloodbath is done, the Fed can bring in Bernanke or whoever Al's real successor is supposed to be.
Personal Credit Blog,
I like your site!
(They think they're going to move on and sell at a profit before they reach the 3 or 5 year point at which higher rates kick in.)
Without a doubt, that is what they expect. If they are wrong.......
( I can't believe people are actually writing these mortgages either.)
The biggest issue to me; where are the regulators? If this goes bad, look for peasants with pitchforks.
(at some point even the subprime and ARM swamp have to dry up too.)
Yeah, the industry push for subprime and ARMs was a desperation move as business dried up after 2003. See archives.
(The big question now is whether Easy Al is really going to bring rates up to even a neutral level. If he backs down, which seems likely, then these people will have a reprieve.)
I agree that it could go either way. But I am on the record saying the bubble should burst with high or low rates, a la Japan.
(If I were choreographing this train wreck, I'd get some disposable person to take the chairmanship after Al steps down next year.)
If there is any justice in the world, Greenspan won't escape his legacy.
Thanks all!..Ben
it's going to be great for the economy when people are upside down on their houses. they'll cut down on almost all purchases, which will kill the economy.
oh well, at least people have a lot of savings, little credit card debt, a big retirement nest egg, no tech stocks, two brand new cars paid off and their gov't isn't indebted. oh wait, forget it!
(they'll cut down on almost all purchases, which will kill the economy.)
The real danger from bubbles. Everybody pays for the folly.
(at least people have a lot of savings, little credit card debt, a big retirement nest egg, no tech stocks, two brand new cars paid off and their gov't isn't indebted. oh wait, forget it!)
A good sense of humor should be in everyones survival kit. Thanks for commenting..Ben
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