tag:blogger.com,1999:blog-13164186.post5737004726158991585..comments2024-01-27T19:26:32.604-05:00Comments on Bubble Meter: Option ARM resetsDavidhttp://www.blogger.com/profile/11169148764438565562noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-13164186.post-52700416242827412342010-01-19T20:22:19.362-05:002010-01-19T20:22:19.362-05:00"My understanding is that most or all of thes..."My understanding is that most or all of these Option ARMs can be moved into fixed-rate mortgages. So why is this a big deal? As soon as people see their rates go up, they will make the move to avoid foreclosure."<br /><br />because you can only refinance if you have equity. I'm not sure what the minimum threshold is, but I'm guessing in this environment at least 10%. The problem is that most people don't have that so they CAN'T refinance into a fixed rate mortgage.Mt Pleasant'erhttps://www.blogger.com/profile/09218984014942801351noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-31091518758030228202010-01-18T14:55:58.890-05:002010-01-18T14:55:58.890-05:00"Anon said...Diana Olick says 49% of the opti..."Anon said...Diana Olick says 49% of the option arms (3/4 of which are located in AZ, FL, CA, & NV) have already defaulted."<br /><br />Yep - heard that from Ivy Zelman (the creator of the infamous credit suisse reset chart), too. She said between the foreclosures, occasional sales, refis and modifications, no single wave will ever come in as big as expected. <br /><br />For example, in earlier charts, that spike in 2011 used to hit the high water mark at 27Billion. Now thanks to foreclosures/sales/refis/mods, it now spikes at under 20 billion. When it "hits" next year, it likely will be at 15 Billion or less. <br /><br />Bottom line, thanks to early defaults/foreclosures/sales/refis & mods, we are pretty much at the 1/2 way point now, regardless of what the chart officially says.Jinglnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-22984611376202095912010-01-18T12:31:57.234-05:002010-01-18T12:31:57.234-05:00OK, there is a serious problem here in understandi...OK, there is a serious problem here in understanding the difference between a "reset" (change in interest rate) and "recast" (forced into full amortization).<br /><br />The payment shock from CR above is based on RECAST, not reset. Most Option Arms go through resets every year, due to it being an ARM.<br /><br />The RECAST is the real problem when the loans go from negative amortization to fully amortizing. Low interest rates have delayed the recast to the stated loan recast. Most have an accelerated recast clause that causes the loan to recast to the fully amortized over the remaining life of the loan when it hits a loan cap, OR they all recast at a specified date, usually 5, 7, or 10 years.<br /><br />Most have NOT hit their recast point, though with rates at this point, they are fully 30 year amortizing. In some cases, the recast over remaining life will only shorten the amortization period from 30 to 25 or 23 (only if they are already amortizing), but that doesn't mean the shock won't be relatively large (plus 25% give or take), these will just be the smallest of the recasts. Remember that every year, these also reset to prevailing rates, so that won't be the last reset. The largest are ones that are negatively amortizing despite the low rates and will experience a significant payment shock of >50% or more. There is probably an even distribution of payment shocks reflected in the graph above.<br /><br />Short answer: it isn't as simple as one might think, but it's probably as significant at it's nadir as one can imagine.Chuck Ponzihttps://www.blogger.com/profile/02563190232678709911noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-42497382397740256812010-01-18T11:43:27.734-05:002010-01-18T11:43:27.734-05:00My understanding is that most or all of these Opti...My understanding is that most or all of these Option ARMs can be moved into fixed-rate mortgages. So why is this a big deal? As soon as people see their rates go up, they will make the move to avoid foreclosure.<br /><br />The articles I have read so dar on this topic suggest that historically, only about 70% of homeowners with resetting Option ARMs will actually do this. This means that of the $2 trillion in option ARMs, about $1.2 trillion will default.<br /><br />Anyone -- please confirm. Thx.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-72385554846571850952010-01-18T11:08:07.337-05:002010-01-18T11:08:07.337-05:00"The question is how many of these Option ARM..."The question is how many of these Option ARM mortgages have already defaulted?" <br /><br />Diana Olick says 49% of the option arms (3/4 of which are located in AZ, FL, CA, & NV) have already defaulted.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-79649577174624807792010-01-18T10:52:40.091-05:002010-01-18T10:52:40.091-05:00First, I'd like to know how current is this gr...First, I'd like to know how current is this graph. For example, how many of the homeowners counted in the data still have a mortgage and did not vacate their homes due to foreclosure, etc.? How much more distress will the Las Vegas real estate market encounter?<br /><br />Second, what is the distribution by region or metropolitan area of the data? Is it proportional to the population size of each region or metropolitan area?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-950753012561860042010-01-18T10:11:44.444-05:002010-01-18T10:11:44.444-05:00One other thought - some of the Option ARM mortgag...One other thought - some of the Option ARM mortgages have already reset. There was a story some months ago about how when the LTV falls to a certain point that the reset can occur sooner than 5 years.Unknownhttps://www.blogger.com/profile/07317858463978974538noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-10509236234645394822010-01-18T10:09:17.754-05:002010-01-18T10:09:17.754-05:00Have they tried to account for loans that have eit...Have they tried to account for loans that have either already foreclosed, or been refinanced?<br /><br />I would think that only a small percentage would fall under these categories.Unknownhttps://www.blogger.com/profile/07317858463978974538noreply@blogger.com