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Huge New Trouble for the Housing Market

By Ethan Brown

Mortgage rates were way, way up last week and because of the rise in rates for 30 year loans the appetite for ARM loans is apparently back, big time.

Borrowers who can't afford the new, higher rates for traditional mortgages are looking at ARMs again and banks are happily handing them out, according to the Field Check Group: [More...]

"Over the past few weeks as 30-year fixed rates have soared, some application volume has moved to a few lenders offering hybrid intermediate-term 3/1 and 5/1 interest only ARMs because of their preferred rates and low monthly payments. Just like during the bubble years, a 5/1 interest only is about 100bps lower in rate than a 30-year fixed...these are the loans that got the housing bubble really going in 2003. From here, the housing bubble was born."

So on top of the ARM resets which will peak in 2011 there might yet another wave of resets in 2012 and beyond because ARMs are yet again in vogue.

It's hard to think of an apt metaphor for the banks but a drunk driver who still has his foot on the accelerator days after a crash might work.

Full post as published by TalkLeft on May 31, 2009 (boomark / email).