Thursday, May 7, 2009

Is the Other Shoe About to Drop in the Mortgage Meltdown?


The original mortgage meltdown was laid squarely at the door of the subprime mortgage market. Heavily marketed to anyone and everyone who could not qualify for a home loan with their current credit record and income to debt ratios, these subprime loans took risks that banks and investors would normally stay away from. Fast forwarding to today, banks and investors are either bankrupt or in desperate need as the mortgage meltdown sent all those who applied for and received no money down, interest only adjustable rate mortgages into foreclosures.

There is now talk that a second shoe is about to drop in the mortgage meltdown, and some market insiders claim that this time it will actually be worse than the first time around. The names of the mortgages that are going to add to the foreclosure crisis are those known as Alt-A and Option Arm documents. Alt-A loans are virtually identical to the subprime mortgages, except that they were offered to would be homeowners whose credit did not have blemishes sufficient enough to qualify them for subprime paper. As such, these loans were considered a fair to good credit risk.

Unfortunately, over the last few years the debtors holding these loans have suffered under the recession, and as such these loans, too, are now beginning to default. The other portion of the equation are the Option Arm loans that are somewhat more daring in that they offered the mortgage payer to exercise a certain amount of control over the repayment terms for the mortgage. The philosophy was great: homeowners could choose to repay their loans with principal and interest or simply pay the interest. Of course, while the ARM has been adjusting upward steadily, homeowners have barely hung on and paid the minimum payments.

As a result, these homeowners have next to no equity. Since home prices have dropped significantly from the day the loan was underwritten, homeowners now find themselves seriously upside down in their loans, making it virtually impossible to extricate themselves from the tangled mess. Option Arm increases are estimated to increase average mortgages by $700 to almost $1,000 per month, making it virtually impossible for the homeowner to continue making the payments. Although it is hard to pinpoint when this show of the mortgage meltdown is going to drop, industry insiders suggest that it will be in 2010, when the next wave of foreclosures is going to hit the economy.

It is questionable if the market can withstand this kind of disaster in a time when it is barely dealing with the current recession and stemming the hemorrhage of lost jobs, failed businesses, and unrealized revenues. It is furthermore doubtful that administration advisers are looking ahead to the future of the mortgage market and truly understand the sheer volume of Alt-A and Option Arms mortgage loans that are coming home to roost. If alarmists are correct, it is this second shoe dropping that will make the first leg of the mortgage meltdown look like little more than a breeze in the storm of the recession.

In order to compare the best mortgage rates, you can visit our site, www.Lender411.com.

About the Author:

Krista Scruggs is an article contributor to Lender411.com. Whether you are looking for fixed mortgage rates, variable adjustable mortgage rates (ARM), jumbo loans,interest only or even specialized mortgages such as bad credit mortgage or reverse mortgages, we will match you with up to 4 qualified lenders with 4 mortgage quotes. and any other unique situation you might be in), we will match you up with the right company.

Article Source:

No comments:

Post a Comment