The New York Times ran a great story today called “It Seemed Like a Good Bet at the Time …” about homebuyers who financed homes in the last few years with adjustable-rate mortgages, many of whom are rushing to refinance to avoid the “reset” – the point at which their payments would start increasing.
According to lenders and mortgage brokers, borrowers who are staying with ARM’s are divided into three groups: those for whom the possibility of higher interest rates is not a concern; those who know they will not be staying in their homes for long; and those who simply cannot afford higher monthly payments – people who are essentially at the mercy of the market.
And it’s those people who are “at the mercy of the market” that cause many to worry:
The more precariously positioned ARM borrowers are very much on the minds of economists, some of whom fear that masses of consumers will not be able to afford the new higher payments, setting off a recession. According to Christopher Cagan, an analyst with First American Real Estate Solutions, a housing consultancy in Santa Ana, Calif., about 19 percent of the 7.7 million ARM’s taken out in 2004 and 2005 are at risk of defaulting.
But many more will escape these loans unscathed, Mr. Cagan said.
Nineteen percent of 7.7 million is 1.463 million loans considered “at risk” by Cagan.
You can read the NY Times story here.