St Louis Mortgage Refinancing and Real Estate News –
News: Homeowners Need to Know There Are Two More Problems with Option ARMs
The option adjustable rate mortgages (ARMs) we have talked about in the past were most popular in bubble markets namely California, Nevada, Florida and Arizona where double digit home annual price increases put the cost of buying a home out of reach.
That means the markets where they’ll produce the most foreclosures are among the most vulnerable in the nation. Home prices in many of the markets where option ARMs are most concentrated have fallen 30%, 40% or more.
When the these loans readjust, most borrowers will find themselves severely underwater as far as home values are concerned.
“Because borrowers of [options ARMs] are in a much worse position,” said Westerback. “You’ll see defaults rising very rapidly.”
And most option ARM borrowers will not be good candidates for refinancing or mortgage loan modifications because their loan-to-value ratios will be far too high.
For example, under the administration’s Making Home Affordable program, mortgages with balances that exceed 125% of the home’s value are not eligible for help. But here’s the kicker: “Upwards of 80% of were stated-income loans,” said Westerback.
These are the so-called “liar loans” in which lenders did not verify that borrowers earned as much money as they said they did, so lenders may not be able to modify mortgages because many of the borrowers’ income could not stand up to the scrutiny.
And on the other hand, borrowers may not want to go through underwriting again because they could be held legally liable for deliberate inaccuracies on their original applications.
Add to those conditions the still fragile economy and high unemployment rates, and you have a recipe for continual financial disaster.
This is not to say that adjustable rate mortgages (ARMs) are bad loans. They do serve a purpose for some homeowners who perhaps will be moving within 5 years of getting their loan.
The St. Louis Refinancing Group news team recommends discussing this type of financing or various other St. Louis home loans with Steve Swan or Doug Stahlschmidt at Liberty Lending Consultants in Westport. Their number is 314-698-4092.
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Here’s more information on adjustable rate mortgages…
Tags: ARM, loan modifications, mortgage news, option adjustable rate mortgage, st louis home loans, st louis mortgage, st louis refinance, st louis refinancing
