Loan Modification

ARMs Reset Crisis Revisited

By Implode-Explode Heavy Industries

While this piece does mention the Pay Option ARM timebomb still ticking as before, it is a bit optimistic to say the "ARM problem has largely gone away" with respect to more "conventional" sorts of ARMs. One problem is that: just because rates are low now, doesn't mean they will stay low for long. In fact, we KNOW rates are only this low because of quantitative easing activities. However, that perpetual motion machine can only stay humming for so long, and when it peters out, we are sure to see a "take back" of the previous low rates.

Second, it is a big "if" whether most ARM holders can refinance into fixed loans that don't have a higher monthly payment than they were paying before. A good chunk of them were in I/O loans for "affordability" reasons, and simply cannot afford fully-amortizing payments on homes at the kinds of prices they bought. Since prices have come down considerably (especially in bubble regions), it will be hard to re-fi into 30-year-fixeds, even through Fannie/Freddie .

Ultimately, it is prices, not rates, that are the true problem. And thus the real, primary solution should be to let prices come down, not attempt to subsidize rates.

Full post as published by Mortgage Lender Implode-o-Meter on May 01, 2009 (boomark / email).