Mortgage News: 13.22% of All Subprime ARM Mortgages Currently Delinquent

Wednesday, December 13, 2006

13.22% of All Subprime ARM Mortgages Currently Delinquent

Here is a report from the Mortgage Bankers Association that points to a very scary statistics.

The SA delinquency rate for the subprime FRM loans increased 35 basis points (9.23 percent to 9.56 percent), whereas the rate for subprime ARMs increased 98 basis points (12.24 percent to 13.22 percent).

Why is this scary?

Subprime loans make up about 30% of all mortgage issued over the last 3 years and were the fastest growing sector of mortgage lending.

Let's put this into perspective. Last year we had about 7 million home sales. 30% of these homes were purchase used a Subprime mortgage. This means 2.1 million homes will subprime loans. If we use a blended average of the deliquency rate of fixed rate mortgage and adjustable rate mortgages we get a 11.39% average deliquency rate.

Possibly as many as 239,190 homes are currently deliquent on their mortgage assuming just those owners who purchased just last year.

I use this figure because most of these people have no equity to start-off with and the likelihood of being able to save themselves is very low. Can't sell - slow market, can't refinance - don't qualify and no equity. Only option - go to foreclosure.

Historically, if the homeowners get more than 45 days behind, there is a 50% chance that the home will go to foreclosure.

That is alot of households in trouble.

Now this may just be the beginning as many of these types of loans are based on a 2/28 adjustable rate mortgage and many of those 2.1 million loans will adjust next year. The jump in mortgage payments can be as high as 55%, as you can see from running examples on this 2/28 adjustable rate mortgage calculator.

If will be interesting to see what happens over the next year but my guess is that things will go south pretty quick.

What's your take? Do you know of anyone who has a subprime loan who is currently in trouble, if so, share the story of why it happened (obiviously no names needed) so we have a better understand of what can be done to help people from this situation.


Anonymous Anonymous said...

I spent one year helping my client repair credit problems caused by an auto accident and consequent medical costs and loss of income so the family could buy a home with a sub-prime 80/20. I warned them sternly about the dangers of the ARM and the absolute need to refinance with a fixed rate agency loan. Per my recommendation they found a modest house that appraised $15,000 over the purchase price of $208,000. They were then supposed to continue credit improvement by getting a couple credit cards and not running them up. We needed two tradelines and 15 points in credit to get a fixed rate conforming agency loan or Alt-A loan for them at 90-95% CLTV. Instead they racked up the credit cards (purportedly due to high fuel prices), took out $20,000 in new housing debt with a government rehab loan at 4%, put on a new roof, finished basement, some wiring and landscaping. When they contacted me for a refinance I found the credit score down 15 points, the house upside down, and that the HRA rehab loans in Minnesota can no longer be subordinated. They're going to be in big trouble when the sub-prime ARM adjusts. (By a mortgage broker in Minnesota.)

5:59 AM  
Anonymous Anonymous said...

We took a ARM because we wanted to get some of the equity out of our home to pay down an unexpected medical situation. We were told that this was our best option and that we would be able to refinance in a few years. We have credit scores of 749 and 690 and owe 210, on our house and it recently appraised for 190, We have made our payments on time and have abut 5000. in total debt, no car payments. Soon the rate will start adjusting and we cannot refinance. We were suckered into this because the broker apparently made more to get us this type of mortgage.. people say to educate yourself..
No one was saying anything negative about ARM's back in 2005 that I could find and when you are under stress and don't know the industry you are forced to trust the "experts" any suggestions for that? kp in Mn.

8:53 AM  

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