13.22% of All Subprime ARM Mortgages Currently Delinquent
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.