5 Year Option ARMs About to Reset
We have been seeing a drastic decline in foreclosures across the country, many markets show signs of stabilization, and it is beginning to look like the end of our current housing crisis is in sight. However there is small group of mortgage products that may have been overlooked, the Option Adjustable-Rate Mortgages (ARMs) with five-year resets.
Option ARMs were mortgages that are negatively amortized. As the borrower makes their minimum subprime payment, the balance of the loan actually grows to a balance of 100% to 125% of the original mortgage. The bulk of these loans were written in 2005 and 2006, and will begin to recast as early as this year. This means that the borrower’s monthly payment will increase from its current minimum monthly payment, to a fully amortizing principal and interest payment.
On average (according to Fitch Ratings Inc.) this new payment is 63% higher then the original minimum monthly payment. Most of these loans closed with an original loan-to-value (LTV) of 79%, but now due to the negative amortization and declining housing values have approximately 126% LTV. This high LTV makes it nearly impossible to refinance the current loan.
In an effort to mitigate the upcoming effects of these recasting, some option ARMs have been modified. The modifications have included term extensions, conversions to interest-only loans, and interest-rate cuts as well. However, it is estimated that only about 3.5% of these option ARMs have been modified. Although the total number of option ARMs represent only about 2 to 3% of the market, we’ve already seen that it doesn’t take much to upset the housing markets.
What should you do if your 5 year option ARM is about to reset?
You should first see if it is possible to refinance your loan. Even if you are upside down on your mortgage, it may be possible to refinance under the Making Home Affordable Refinance Program.
If you are unable to refinance your loan, the next best option would be to contact your lender before the recast and try and get the loan modified.
If you are unable to get your loan modified, or the modification your lender is offering is still unfeasible, you may want to look into seeking legal counsel, joining an advocacy group, or contacting a Realtor who has experience in assisting those who are in default, or about to be default on their loans.
Should you have any questions or need further information,
please don’t hesitate to contact me, (775) 220-1630
Or visit my blog at www.SellingNorthernNV.com
Joshua Talayka
Chase International
Office: 775 850 5900
Toll Free: 877 922 5900
Cell: 775 220 1630
Fax: 775 850 5901
985 Damonte Ranch Pkwy, Ste. 110
Reno, Nevada (NV) 89521
When you consider that this asset class represents roughly $189bn, and that the vast majority of them were originated in CA, AZ, NV, and FL it becomes easy to envision the additional 20% decline in property values that is predicted for our market in the next year. This is creating the best real estate investment opportunity we will see in our lifetime.
http://www.housingwire.com/2010/01/08/the-option-arm-hitch/
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