Renae Merle – “ARM resets to hit peak this summer”

http://www.chicagotribune.com/business/chi-re-subprime-peak-0701jul13,0,2584822.story

ARM resets to hit peak this summer
More than 300,000 loans due to adjust

Renae Merle | July 13, 2008

The number of homeowners facing an increase in their subprime adjustable-rate mortgage payments will peak this summer, testing the efforts of lenders and others to keep those people out of foreclosure and stabilize the housing market.

The timing reflects the height of subprime lending in the summers of 2005 and 2006, when many borrowers secured loans scheduled to adjust in two or three years. For many, an adjustment means their interest rate will go up 2 to 3 percentage points.

“The next six months, the industry, all of the folks that are out there trying to solve this problem, they are going to be very busy,” said Mark Fleming, chief economist for First American CoreLogic, a California research firm. “There are a lot of people facing their resets right now. A good share of them don’t have the refinance option.”

Nationally, the number of subprime adjustable-rate loans resetting peaked at 7.61 percent of the loans outstanding last month, according to data from CoreLogic. More than 300,000 such loans will adjust this summer. CoreLogic’s data covers about 80 percent of the mortgage market.

Lenders, federal officials and housing counselors have worried that borrowers will not be able to afford the higher payments after the reset and will quickly fall into foreclosure. Declining home prices have made it impossible for many of these homeowners to refinance.

It will not be clear for months how many will lose their homes, Fleming said. “A lot of those are resetting now,” he said. “We may not see the impact in foreclosures until the middle of 2009.”

Foreclosure rates have set records nationally. The Washington, D.C., area has one of the fastest-growing foreclosure rates in the nation, according to a recent report by the Metropolitan Washington Council of Governments and Freddie Mac.

“Locally we’re going to continue to see foreclosures be at a high level until these resets finish their run,” said John McClain, deputy director of the Center for Regional Analysis at George Mason University. If home prices do not continue to drop, the foreclosure rate could start to slow in late fall or early next year, he said.

The mortgage industry has trumpeted efforts to reach homeowners and put them in affordable mortgages. Members of Hope Now, an alliance of mortgage lenders and non-profit groups, have agreed to contact homeowners 120 days before their loans reset. “There has been a lot of work done to meet the demand,” said Faith Schwartz, head of Hope Now.

Since January, the alliance has been monitoring 718,000 subprime loans with resets scheduled for this year, looking for trends and problems, Schwartz said.

Less than 1 percent of homeowners who paid their mortgage on time before their loans reset have fallen into foreclosure, she said. Others have sold their home or found a way to refinance.

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Published in: on July 16, 2008 at 12:12 AM  Leave a Comment  

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